**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**____________________________**


**FORM
      10-Q**





**x 
QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the quarterly period ended June 30, 2007****OR****o TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
                EXCHANGE ACT OF 1934****For
                the transition period from _____________****to
                _____________****.**





**Commission
      File Number 000-30929**


**___________________**


**KERYX
      BIOPHARMACEUTICALS, INC.**


**(Exact
      name of registrant as specified in its charter)**





**Delaware**
              (State
                or other jurisdiction of incorporation or organization)
            **13-4087132**
              (I.R.S.
                Employer Identification No.)




**750
      Lexington Avenue**


**New
      York, New York 10022**


(Address
      including zip code of principal executive offices)





**(212)
      531-5965**


(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x No £





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check
      one):





Large
      accelerated filer £    Accelerated
      filer x   Non-accelerated
      filer £





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act).


Yes £ No x





There
      were 43,591,153 shares of the registrant’s common stock, $0.001 par value,
      outstanding as of August 7, 2007.








**KERYX
      BIOPHARMACEUTICALS, INC.**


**FORM
      10-Q**


**FOR
      THE QUARTER ENDED JUNE 30, 2007**





**TABLE
      OF CONTENTS**








**Page**SPECIAL
                CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
            2**PART
                I**
            **FINANCIAL
                INFORMATION**
            3Item
                1
            Financial
                Statements
            3Consolidated
                Balance Sheets as of June 30, 2007 (unaudited) and
              December
                31, 2006
            3Consolidated
                Statements of Operations for the three and six months
              ended
                June 30, 2007 and 2006 (unaudited)
            4Consolidated
                Statement of Changes in Stockholders’ Equity
              for
                the six months ended June 30, 2007 (unaudited)
            5Consolidated
                Statements of Cash Flows for the six months
              ended
                June 30, 2007 and 2006 (unaudited)
            6Notes
                to Consolidated Financial Statements (unaudited)
            8Item
                2
            Management's
                Discussion and Analysis of Financial Condition and
              Results
                of Operations
            15Item
                3
            Quantitative
                and Qualitative Disclosures About Market Risk
            26Item
                4
            Controls
                and Procedures
            26**PART
                II**
            **OTHER
                INFORMATION**
            26Item
                1
            Legal
                Proceedings
            26Item
                1A
            Risk
                Factors
            27Item
                4
            Submission
                of Matters to a Vote of Security Holders
            38Item
                6
            Exhibits
            39








1





**SPECIAL
      CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS**





Certain
      matters discussed in this report, including matters discussed under the caption
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations,” may constitute forward-looking statements for purposes of the
      Securities Act of 1933, as amended, or the Securities Act, and the Securities
      Exchange Act of 1934, as amended, or the Exchange Act, and involve known and
      unknown risks, uncertainties and other factors that may cause our actual
      results, performance or achievements to be materially different from the future
      results, performance or achievements expressed or implied by such
      forward-looking statements. The words "anticipate," "believe," "estimate,"
      "may," "expect" and similar expressions are generally intended to identify
      forward-looking statements. Our actual results may differ materially from the
      results anticipated in these forward-looking statements due to a variety of
      factors, including, without limitation, those discussed under the captions
“Risk
      Factors,” “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” and elsewhere in this report, as well as other factors
      which may be identified from time to time in our other filings with the
      Securities and Exchange Commission, or the SEC, or in the documents where such
      forward-looking statements appear. All written or oral forward-looking
      statements attributable to us are expressly qualified in their entirety by
      these
      cautionary statements. Such forward-looking statements include, but are not
      limited to, statements about our:




·
            expectations
                for increases or decreases in expenses;




·
            expectations
                for the development, manufacturing, regulatory approval, and
                commercialization of SulonexTM,
                ZerenexTM,
              KRX-0401
                (perifosine), and our additional product candidates or any other
                products
                we may acquire or in-license;




·
            expectations
                for incurring capital expenditures to expand our research and development
                and manufacturing capabilities;




·
            expectations
                for generating revenue or becoming profitable on a sustained basis;




·
            expectations
                or ability to enter into marketing and other partnership agreements;




·
            expectations
                or ability to enter into product acquisition and in-licensing
                transactions;




·
            expectations
                or ability to build our own commercial infrastructure to manufacture,
                market and sell our drug
                candidates;




·
            estimates
                of the sufficiency of our existing cash and cash equivalents and
                investments to finance our business strategy;




·
            expected
                losses; and




·
            expectations
                for future capital requirements.





The
      forward-looking statements contained in this report reflect our views and
      assumptions only as of the date this report is signed. Except as required by
      law, we assume no responsibility for updating any forward-looking statements.





We
      qualify all of our forward-looking statements by these cautionary statements.
      In
      addition, with respect to all of our forward-looking statements, we claim the
      protection of the safe harbor for forward-looking statements contained in the
      Private Securities Litigation Reform Act of 1995.


2


**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS**





**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Balance Sheets as of June 30, 2007, and December 31, 2006


(in
      thousands, except share and per share amounts)





**June
                30, 2007**
            
            **December
                31, 2006****(Unaudited)****Assets**Current
                assetsCash
                and cash equivalents
            
            $
            24,420
            
            $
            48,736Short-term
                investment securities
            
            
            61,162
            
            
            63,659Accrued
                interest receivable
            
            
            382
            
            
            525Other
                current assets
            
            
            426
            
            
            2,048Total
                current assets
            
            
            86,390
            
            
            114,968Long-term
                investment securities
            
            
            2,294
            
            
            12,690Property,
                plant and equipment, net
            
            
            11,168
            
            
            8,489Goodwill
            
            
            3,208
            
            
            3,208Other
                assets, net
            
            
            344
            
            
            958Total
                assets
            
            $
            103,404
            
            $
            140,313**Liabilities
                and stockholders’ equity**Current
                liabilitiesAccounts
                payable and accrued expenses
            
            $
            10,212
            
            $
            10,460Accrued
                compensation and related liabilities
            
            
            606
            
            
            1,534Deferred
                revenue
            
            
            265
            
            
            200Total
                current liabilities
            
            
            11,083
            
            
            12,194Contingent
                equity rights
            
            
            4,004
            
            
            4,004Other
                liabilities
            
            
            248
            
            
            294Total
                liabilities
            
            
            15,335
            
            
            16,492Stockholders’
                equityCommon
                stock, $0.001 par value per share (95,000,000 and 60,000,000 shares
                authorized,
              43,661,101
                and 43,516,669 shares issued, 43,581,153 and 43,460,569 shares outstanding
                at
              June
                30, 2007, and December 31, 2006, respectively)
            
            
            44
            
            
            44Additional
                paid-in capital
            
            
            317,867
            
            
            312,078Treasury
                stock, at cost, 79,948 and 56,100 shares at June 30, 2007, and December
                31, 2006, respectively
            
            
            (357
            )
            
            (89
            )Deficit
                accumulated during the development stage
            
            
            (229,485
            )
            
            (188,212
            )Total
                stockholders’ equity
            
            
            88,069
            
            
            123,821Total
                liabilities and stockholders’ equity
            
            $
            103,404
            
            $
            140,313





*The
      accompanying notes are an integral part of the consolidated financial
      statements.*


3


**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Statements of Operations for the


Three
      and
      Six Months Ended June 30, 2007 and 2006 (Unaudited) (in
        thousands, except share and per share amounts)





**Three
                months ended**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **stage**Revenue:Diagnostic
                revenue
            
            $
            36
            
            $
            23
            
            $
            66
            
            $
            23
            
            $
            169Service
                revenue
            
            
            14
            
            
            224
            
            
            26
            
            
            336
            
            
            1,840Management
                fees from related party
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            300Total
                revenue
            
            
            50
            
            
            247
            
            
            92
            
            
            359
            
            
            2,309Operating
                expenses:Cost
                of diagnostics sold
            
            
            16
            
            
            19
            
            
            38
            
            
            19
            
            
            178Cost
                of services
            
            
            30
            
            
            98
            
            
            62
            
            
            269
            
            
            2,106Research
                and development:Non-cash
                compensation
            
            
            1,178
            
            
            2,104
            
            
            2,173
            
            
            4,828
            
            
            16,411Non-cash
                acquired in-process research
              and
                development
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            18,800Other
                research and development
            
            
            15,685
            
            
            12,352
            
            
            33,131
            
            
            24,685
            
            
            153,164Total
                research and development
            
            
            16,863
            
            
            14,456
            
            
            35,304
            
            
            29,513
            
            
            188,375Selling,
                general and administrative:Non-cash
                compensation
            
            
            1,407
            
            
            3,541
            
            
            3,413
            
            
            6,358
            
            
            17,262Other
                selling, general and administrative
            
            
            2,394
            
            
            1,860
            
            
            5,189
            
            
            4,505
            
            
            39,385Total
                selling, general and administrative
            
            
            3,801
            
            
            5,401
            
            
            8,602
            
            
            10,863
            
            
            56,647Total
                operating expenses
            
            
            20,710
            
            
            19,974
            
            
            44,006
            
            
            40,664
            
            
            247,306Operating
                loss
            
            
            (20,660
            )
            
            (19,727
            )
            
            (43,914
            )
            
            (40,305
            )
            
            (244,997
            )Interest
                and other income, net
            
            
            1,200
            
            
            1,899
            
            
            2,641
            
            
            2,881
            
            
            16,003Net
                loss before income taxes
            
            
            (19,460
            )
            
            (17,828
            )
            
            (41,273
            )
            
            (37,424
            )
            
            (228,994
            )Income
                taxes
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            491Net
                loss
            
            $
            (19,460
            )
            $
            (17,828
            )
            $
            (41,273
            )
            $
            (37,424
            )
            $
            (229,485
            )Basic
                and diluted loss per common share
            
            $
            (0.45
            )
            $
            (0.41
            )
            $
            (0.95
            )
            $
            (0.92
            )
            $
            (10.66
            )Weighted
                average shares used in
              computing
                basic and diluted net
              loss
                per common share
            
            
            43,556,475
            
            
            43,117,656
            
            
            43,531,495
            
            
            40,608,571
            
            
            21,530,982





*The
      accompanying notes are an integral part of the consolidated financial
      statements.*


4


**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Statement of Changes in Stockholders’ Equity for the


Six
      Months Ended June 30, 2007 (Unaudited)


(in
      thousands, except share amounts)








**Common
                stock**
            
            **Additional
                paid-in****Shares**
            
            **Amount**
            
            **capital**Balance
                at December 31, 2006
            
            
            43,516,669
            
            $
            44
            
            $
            312,078Changes
                during the period:Cancellation
                of common stock held inescrow
            
            
            (15,646
            )
            
            (--)*
            
            
            --Issuance
                of restricted stock
            
            
            165,000
            
            
            --*
            
            
            --Forfeiture
                of restricted stock
            
            
            (83,334
            )
            
            (--)*
            
            
            --Surrender
                of common stock for taxwithholding
            
            
            --
            
            
            --
            
            
            --Exercise
                of options
            
            
            78,412
            
            
            --*
            
            
            203Compensation
                in respect of options,
              restricted
                stock and warrants granted
              to
                employees, directors and third-parties
            
            
            --
            
            
            --
            
            
            5,586Net
                loss
            
            
            --
            
            
            --
            
            
            --Balance
                at June 30, 2007
            
            
            43,661,101
            
            $
            44
            
            $
            317,867








**Treasury
                stock**
            
            **Deficit
                accumulated during the development****Shares**
            
            **Amount**
            
            **Stage**
            
            **Total**Balance
                at December 31, 2006
            
            
            56,100
            
            $
            (89
            )
            $
            (188,212
            )
            $
            123,821Changes
                during the period:Cancellation
                of common stock held inescrow
            
            
            --
            
            
            --
            
            
            --
            
            
            (--)*Issuance
                of restricted stock
            
            
            --
            
            
            --
            
            
            --
            
            
            --*Forfeiture
                of restricted stock
            
            
            --
            
            
            --
            
            
            --
            
            
            (--)*Surrender
                of common stock for taxwithholding
            
            
            23,848
            
            
            (268
            )
            
            --
            
            
            (268
            )Exercise
                of options
            
            
            --
            
            
            --
            
            
            --
            
            
            203Compensation
                in respect of options,
              restricted
                stock and warrants granted
              to
                employees, directors and third-parties
            
            
            --
            
            
            --
            
            
            --
            
            
            5,586Net
                loss
            
            
            --
            
            
            --
            
            
            (41,273
            )
            
            (41,273
            )Balance
                at June 30, 2007
            
            
            79,948
            
            $
            (357
            )
            $
            (229,485
            )
            $
            88,069





**
      Amount less than one thousand dollars.*





*The
      accompanying notes are an integral part of the consolidated financial
      statements.*


5


**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
      (Unaudited) 
 (in
      thousands)




**Six
                months ended**
              **June
                30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development****2007**
            
            **2006**
            
            **stage**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (41,273
            )
            $
            (37,424
            )
            $
            (229,485
            )Adjustments
                to reconcile cash flows used in operating activities:Acquired
                in-process research and development
            
            
            --
            
            
            --
            
            
            18,800Stock
                compensation expense
            
            
            5,586
            
            
            11,186
            
            
            33,673Issuance
                of common stock to technology licensor
            
            
            --
            
            
            --
            
            
            359Interest
                on convertible notes settled through issuance of preferredshares
            
            
            --
            
            
            --
            
            
            253Depreciation
                and amortization
            
            
            84
            
            
            120
            
            
            2,919(Gain)
                loss on disposal of property, plant and equipment
            
            
            (1
            )
            
            --
            
            
            171Impairment
                charges
            
            
            600
            
            
            --
            
            
            3,082Exchange
                rate differences
            
            
            --
            
            
            --
            
            
            94Changes
                in assets and liabilities, net of effects of acquisitions:Decrease
                (increase) in other current assets
            
            
            1,622
            
            
            (1,524
            )
            
            46Decrease
                (increase) in accrued interest receivable
            
            
            143
            
            
            (86
            )
            
            (382
            )(Increase)
                in security deposits
            
            
            --
            
            
            (241
            )
            
            (263
            )(Decrease)
                increase in accounts payable and accrued expenses
            
            
            (248
            )
            
            625
            
            
            8,467(Decrease)
                increase in accrued compensation and related liabilities
            
            
            (928
            )
            
            (558
            )
            
            11(Decrease)
                increase in other liabilities
            
            
            (46
            )
            
            (34
            )
            
            93Increase
                (decrease) in deferred revenue
            
            
            65
            
            
            81
            
            
            (191
            )Net
                cash used in operating activities
            
            
            (34,396
            )
            
            (27,855
            )
            
            (162,353
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of property, plant and equipment
            
            
            (2,763
            )
            
            (1,798
            )
            
            (15,751
            )Proceeds
                from disposals of property, plant and equipment
            
            
            15
            
            
            --
            
            
            440(Increase)
                in note and accrued interest receivable from related party
            
            
            --
            
            
            --
            
            
            (356
            )Payments
                of transaction costs
            
            
            --
            
            
            (145
            )
            
            (231
            )Decrease
                (increase) in other assets
            
            
            --
            
            
            27
            
            
            (1,192
            )Investment
                in held-to-maturity short-term securities
            
            
            (2,034
            )
            
            (4,011
            )
            
            (50,947
            )Proceeds
                from maturity of held-to-maturity short-term securities
            
            
            8,504
            
            
            1,071
            
            
            60,525Investment
                in available-for-sale short-term securities
            
            
            (10,000
            )
            
            (30,825
            )
            
            (68,100
            )Proceeds
                from sale of available-for-sale short-term securities
            
            
            18,750
            
            
            175
            
            
            35,150Investment
                in held-to-maturity long-term securities
            
            
            (2,329
            )
            
            (7,822
            )
            
            (40,276
            )Proceeds
                from maturity of held-to-maturity long-term securities
            
            
            2
            
            
            4
            
            
            192Net
                cash provided by (used in) investing activities
            
            
            10,145
            
            
            (43,324
            )
            
            (80,546
            )





*The
      accompanying notes are an integral part of the consolidated financial
      statements.*


6


**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
      (Unaudited)


(continued)


(in
      thousands)





**Six
                months ended**
              **June
                30,**
            
            **Amounts**
              **accumulated**
              **during
                the**
              **development**
              **stage****2007**
            
            **2006**CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from short-term loans
            
            $
            --
            
            $
            --
            
            $
            500Proceeds
                from long-term loans
            
            
            --
            
            
            --
            
            
            3,251Payment
                of assumed notes payable and accrued interest in connection
              with
                the ACCESS Oncology acquisition
            
            
            --
            
            
            --
            
            
            (6,322
            )Issuance
                of convertible note, net
            
            
            --
            
            
            --
            
            
            2,150Issuance
                of preferred shares, net
            
            
            --
            
            
            --
            
            
            8,453Receipts
                on account of shares previously issued
            
            
            --
            
            
            --
            
            
            7Proceeds
                from initial public offering, net
            
            
            --
            
            
            --
            
            
            46,298Proceeds
                from subsequent public offerings, net
            
            
            --
            
            
            82,696
            
            
            158,487Proceeds
                from private placements, net
            
            
            --
            
            
            --
            
            
            45,795Proceeds
                from exercise of options and warrants
            
            
            203
            
            
            1,361
            
            
            9,052Purchase
                of treasury stock
            
            
            (268
            )
            
            --
            
            
            (357
            )Net
                cash (used in) provided by financing activities
            
            
            (65
            )
            
            84,057
            
            
            267,314Cash
                acquired in acquisition
            
            
            --
            
            
            5
            
            
            99Effect
                of exchange rate on cash
            
            
            --
            
            
            --
            
            
            (94
            )NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (24,316
            )
            
            12,883
            
            
            24,420Cash
                and cash equivalents at beginning of year
            
            
            48,736
            
            
            68,175
            
            
            --CASH
                AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            24,420
            
            $
            81,058
            
            $
            24,420NON
                - CASH TRANSACTIONSIssuance
                of common stock in connection with acquisition
            
            $
            --
            
            $
            3,310
            
            $
            9,635Contingent
                equity rights in connection with acquisition
            
            
            --
            
            
            --
            
            
            4,004Assumption
                of liabilities in connection with acquisition
            
            
            --
            
            
            347
            
            
            9,068Conversion
                of short-term loans into contributed capital
            
            
            --
            
            
            --
            
            
            500Conversion
                of long-term loans into contributed capital
            
            
            --
            
            
            --
            
            
            2,681Conversion
                of long-term loans into convertible notes of Partec
            
            
            --
            
            
            --
            
            
            570Conversion
                of convertible notes of Partec and accrued interest into stock
              in
                Keryx
            
            
            --
            
            
            --
            
            
            2,973Issuance
                of warrants to related party as finder’s fee in private
                placement
            
            
            --
            
            
            --
            
            
            114Declaration
                of stock dividend
            
            
            --
            
            
            --
            
            
            3SUPPLEMENTARY
                DISCLOSURES OF CASH FLOW
              INFORMATIONCash
                paid for interest
            
            $
            --
            
            $
            --
            
            $
            1,166Cash
                paid for income taxes
            
            $
            --
            
            $
            --
            
            $
            432




*The
      accompanying notes are an integral part of the consolidated financial
      statements.*


7


**Keryx
      Biopharmaceuticals, Inc. (A Development Stage Company)**


Notes
      to
      Consolidated Financial Statements (unaudited)




**NOTE
      1 - GENERAL**





BASIS
      OF
      PRESENTATION





Keryx
      Biopharmaceuticals, Inc. (“Keryx” or the “Company”) is a biopharmaceutical
      company focused on the acquisition, development and commercialization of
      medically important, novel pharmaceutical products for the treatment of
      life-threatening diseases, including diabetes and cancer. The Company was
      incorporated in Delaware in October 1998 (under the name Paramount
      Pharmaceuticals, Inc., which was later changed to Lakaro Biopharmaceuticals,
      Inc. in November 1999, and finally to Keryx Biopharmaceuticals, Inc. in January
      2000). The Company commenced activities in November 1999, focusing on the
      development and commercialization of clinical compounds and core technologies
      for the life sciences.





Until
      November 1999, most of the Company’s activities were carried out by Partec
      Limited, an Israeli corporation formed in December 1996, and its subsidiaries
      -
      SignalSite Inc. (85% owned), SignalSite Israel Ltd. (wholly-owned), Vectagen
      Inc. (87.25% owned) and Vectagen Israel Ltd. (wholly-owned) (hereinafter
      collectively referred to as “Partec”). In November 1999, the Company acquired
      substantially all of the assets and liabilities of Partec and, as of that date,
      the activities formerly carried out by Partec were performed by the Company.
      On
      the date of the acquisition, Keryx and Partec were entities under common control
      (the controlling interest owned approximately 79.7% of Keryx and approximately
      76% of Partec) and accordingly, the assets and liabilities were recorded at
      their historical cost basis by means of “as if” pooling, with Partec being
      presented as a predecessor company. Consequently, these financial statements
      include the activities performed in previous periods by Partec by aggregating
      the relevant historical financial information with the financial statements
      of
      the Company as if they had formed a discrete operation under common management
      for the entire development stage.





The
      Company owns a 100% interest in each of ACCESS Oncology, Inc., Neryx
      Biopharmaceuticals, Inc., and Accumin Diagnostics, Inc., all U.S. corporations
      incorporated in the State of Delaware, and Keryx (Israel) Ltd. and Keryx
      Biomedical Technologies Ltd., each organized in Israel. In 2003, the Company’s subsidiaries
      in Israel ceased operations and are currently in the process of being closed
      down. Most
      of
      the Company's biopharmaceutical development and substantially all of its
      administrative operations during the six months ended June 30, 2007, and 2006,
      were conducted in the United States of America.





On
      February 5, 2004, the Company completed the acquisition of ACCESS Oncology,
      Inc.
      and its subsidiaries (“ACCESS Oncology”). The transaction was structured as a
      merger of AXO Acquisition Corp., a Delaware corporation and the Company’s
      wholly-owned subsidiary, with and into ACCESS Oncology, with ACCESS Oncology
      remaining as the surviving corporation and a wholly-owned subsidiary of the
      Company. The transaction was accounted for under the purchase method of
      accounting. The assets and liabilities of ACCESS Oncology that the Company
      acquired and assumed pursuant to the acquisition have been included in the
      Company’s consolidated financial statements as of February 5, 2004.





On
      April
      6, 2006, Accumin Diagnostics, Inc., a wholly-owned subsidiary of the Company,
      completed the acquisition of Accumin TM ,
      a
      novel, patent protected, diagnostic for the direct measurement of total,
      intact urinary albumin, from AusAm Biotechnologies, Inc. The transaction was
      accounted for under the purchase method of accounting. The assets and
      liabilities of Accumin that the Company acquired and assumed pursuant to the
      acquisition have been included in the Company’s consolidated financial
      statements as of April 6, 2006. (See Note 4).





The
      accompanying unaudited consolidated financial statements were prepared in
      accordance with U.S. generally accepted accounting principles (“GAAP”) for
      interim financial information and with the instructions to Form 10-Q and
      Article 10 of Regulation S-X. Accordingly, they do not include all of
      the information and footnotes required by GAAP for complete financial
      statements. All adjustments that are, in the opinion of management, of a normal
      recurring nature and are necessary for a fair presentation of the consolidated
      financial statements have been included. Nevertheless, these financial
      statements should be read in conjunction with the Company's audited consolidated
      financial statements contained in its Annual Report on Form 10-K for the year
      ended December 31, 2006. The results of operations for the three and six months
      ended June 30, 2007 are not necessarily indicative of the results that may
      be
      expected for the entire fiscal year or any other interim period.




8




The
      Company has not generated any revenues from its planned principal operations
      and
      is dependent upon significant financing to provide the working capital necessary
      to execute its business plan. If the Company determines that it is necessary
      to
      seek additional funding, there can be no assurance that the Company will be
      able
      to obtain any such funding on terms that are acceptable to it, if at
      all.





STOCK
      -
      BASED COMPENSATION




The
      Company adopted Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” (“SFAS 123R”) on January 1, 2006 using the modified
      prospective transition method. SFAS 123R requires all share-based payments
      to
      employees, or to non-employee directors as compensation for service on the
      Board
      of Directors, to be recognized as compensation expense in the consolidated
      financial statements based on the fair values of such payments. Stock-based
      compensation expense recognized each period is based on the value of the portion
      of share-based payment awards that is ultimately expected to vest during the
      period. SFAS 123R requires forfeitures to be estimated at the time of grant
      and
      revised, if necessary, in subsequent periods if actual forfeitures differ from
      those estimates.





The
      Company accounts for equity instruments issued to third party service providers
      (non-employees) in accordance with the fair value method prescribed by the
      provisions of Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity
      Instruments That Are Issued to Other Than Employees for Acquiring, or in
      Conjunction with Selling Goods or Services” (“EITF 96-18”).





NET
      LOSS
      PER SHARE





Basic
      net
      loss per share is computed by dividing the losses allocable to common
      stockholders by the weighted average number of shares of common stock
      outstanding for the period. Diluted net loss per share does not reflect the
      effect of shares of common stock to be issued upon the exercise of stock options
      and warrants, as their inclusion would be anti-dilutive. The options and
      warrants outstanding as of June 30, 2007, and 2006, which are not included
      in
      the computation of net loss per share amounts, were 10,859,094 and 10,816,937,
      respectively.





PATENTS





Through
      March 31, 2006, the Company classified its patent expenses in other research
      and
      development. Effective April 1, 2006, the Company has classified its patent
      expenses in other general and administrative. The results of prior periods
      have
      not been reclassified because they were not significant.





ACCOUNTING
      FOR MANUFACTURING SUITE





As
      of
      June 30, 2007, the Company has spent approximately $10.8 million in capital
      expenditures building its manufacturing suite for Sulonex. The Company
      anticipates that in the second half of 2007, after equipment validation has
      been
      completed, the facility will be ready for its intended use, and the Company
      will
      begin to depreciate this asset at that time.




INCOME
      TAXES




On
      January 1, 2007, the Company adopted FIN 48, Accounting for Uncertainty in
      Income Taxes. FIN 48 clarifies the criteria for recognizing tax benefits related
      to uncertain tax positions under SFAS No. 109, Accounting for Income Taxes,
      and
      requires additional financial statement disclosure. FIN 48 requires that the
      Company recognize, in its consolidated financial statements, the impact of
      a tax
      position if that position is more likely than not to be sustained upon
      examination, based on the technical merits of the position. Adoption of FIN
      48
      had no impact on the Company’s consolidated results of operations and financial
      position.





Upon
      adoption, the Company believes there are no uncertain tax positions that fail
      to
      meet the more likely than not recognition threshold under FIN 48 to be sustained
      upon examination.




9




Prior
      to
      the adoption of FIN 48, the Company included interest accrued on the
      underpayment of income taxes, if any, in selling, general and administrative
      expense. The Company continued to follow this policy following the adoption
      of
      FIN 48.





The
      Company files income tax returns in the U.S. and the statue of limitations
      has
      expired for years prior to 2003. In 2006, the Internal Revenue Service commenced
      an examination of the Company’s U.S. Federal income tax returns for tax years
      2004 and 2005. The Company has filed inactive returns in Israel for its
      subsidiaries in Israel since 2004. These subsidiaries in Israel had ceased
      operations and are currently in the process of being closed down. In 2007,
      the
      Israeli tax authorities commenced an examination of the Israeli tax returns
      of
      one of the Company’s subsidiaries in Israel for the tax years 2003 through
      2006.





The
      Company and its subsidiaries file income tax returns in the U.S. federal
      jurisdiction and in various states. The Company has tax net operating loss
      carryforwards that are subject to examination for a number of years beyond
      the
      year in which they are utilized for tax purposes. Since a portion of these
      carryforwards may be utilized in the future, many of these carryforwards will
      remain subject to examination.





**NOTE
      2 - STOCKHOLDERS' EQUITY**




**COMMON
      STOCK**





On
      March
      29, 2006, the Company completed a registered direct offering of 4,500,000 shares
      of its common stock to two institutional investors at $18.40 per share. Total
      proceeds to the Company from this public offering were approximately $82.7
      million, net of offering expenses of approximately $0.1 million. The shares
      were
      sold under a shelf registration statement on Form S-3 (File No. 333-130809)
      filed with the Securities and Exchange Commission, or SEC, on December 30,
      2005,
      and declared effective by the SEC on January 13, 2006, covering shares of the
      Company’s Common Stock having a value not to exceed $150 million.





The
      Company may offer the remaining securities under its shelf registration from
      time to time in response to market conditions or other circumstances if it
      believes such a plan of financing is in the best interest of the Company and
      its
      stockholders. The Company believes that the shelf registration provides it
      with
      the flexibility to raise additional capital to finance its operations as needed.





On
      June
      20, 2007, at the 2007 Annual Meeting of Stockholders, the Company’s stockholders
      approved an amendment to the Company’s amended and restated certificate of
      incorporation increasing the shares of authorized common stock from 60,000,000
      shares to 95,000,000 shares. The number of authorized shares of preferred stock
      remains unchanged at 5,000,000 shares.





**TREASURY
      STOCK**





On
      February 14, 2007, our former Chief Financial Officer surrendered to the Company
      5,973 shares of common stock in order to satisfy his tax withholding obligation
      upon the vesting of 16,666 shares of restricted stock. The 5,973 shares of
      common stock are being held by the Company in Treasury, at a cost of
      approximately $70,000, representing the fair market value on the date the shares
      were surrendered.





On
      April
      25, 2007, our President surrendered to the Company 17,875 shares of common
      stock
      in order to satisfy his tax withholding obligation upon the vesting of 50,000
      shares of restricted stock. The 17,875 shares of common stock are being held
      by
      the Company in Treasury, at a cost of approximately $198,000, representing
      the
      fair market value on the date the shares were surrendered.




**STOCK
      OPTIONS, RESTRICTED STOCK AND WARRANTS**





In
      March
      2007, the Company adopted the 2007 Chief Accounting Officer Inducement Stock
      Option Plan (the “2007 CAO Plan”). Under the 2007 CAO Plan, the Company’s board
      of directors granted an option to the newly-appointed Chief Accounting Officer
      of the Company to purchase up to 100,000 shares of authorized but unissued
      common stock. The option has a term of 10 years from the date of the grant.
      The
      option granted to the newly appointed Chief Accounting Officer was made pursuant
      to an employment arrangement. Of these options, 25,000 vest on the one-year
      anniversary of employment and 6,250 vest every three months following the
      one-year anniversary of employment, until the 48 th month of
      employment. No additional shares of our common stock may be issued under the
      2007 CAO Plan.




10




In
      April
      2007, the Company adopted the 2007 General Counsel Incentive Stock Option Plan
      (the “2007 GC Plan”). Under the 2007 GC Plan, the Company’s board of directors
      granted an option to the newly-appointed General Counsel of the Company to
      purchase up to 150,000 shares of authorized but unissued common stock. The
      option has a term of 10 years from the date of the grant. The option granted
      to
      the newly appointed General Counsel was made pursuant to an employment
      arrangement. Of these options, 37,500 vest on the one-year anniversary of
      employment and 9,375 vest every three months following the one-year anniversary
      of employment, until the 48 th month of
      employment. No additional shares of our common stock may be issued under the
      2007 GC Plan.





The
      2007
      Incentive Plan was adopted in June 2007 by our stockholders. Under the 2007
      Incentive Plan, the compensation committee of the Company’s board of directors
      is authorized to grant stock-based awards to directors, consultants, employees
      and officers. The 2007 Incentive Plan authorizes grants to purchase up to
      6,000,000 shares of authorized but unissued common stock. The plan limits the
      term of each option to no more than 10 years from the date of their grant.
      As of
      June 30, 2007, up to an additional 6,000,000 shares may be issued under the
      2007
      Incentive Plan.





The
      following table summarizes equity awards authorized by the Company as of June
      30, 2007.





**Plan**
            
            **Exercise**
              **price**
            
            **Authorized**
            
            **Outstanding**
            
            **Exercised**
            
            **Restricted**
              **stock**
              **vested**
            
            **Exercisable**
            
            **Available**
              **for
                grant**1999
                Stock Option Plan
            
            $
            0.10
                - 1.30
            
            
            4,230,000
            
            
            617,995
            
            
            3,506,505
            
            
            --
            
            
            617,995
            
            
            --2000
                Stock Option Plan
            
            
            1.10
                - 14.64
            
            
            4,455,000
            
            
            2,819,465
            
            
            1,581,156
            
            
            --
            
            
            2,291,455
            
            
            54,379Non
                Plan
            
            
            0.33
            
            
            240,000
            
            
            60,000
            
            
            157,500
            
            
            --
            
            
            60,000
            
            
            --2002
                CEO Incentive Stock
              Option
                Plan
            
            
            1.30
            
            
            2,002,657
            
            
            2,002,657
            
            
            --
            
            
            --
            
            
            2,002,657
            
            
            --2004
                President Incentive Plan
            
            
            9.25
            
            
            1,000,000
            
            
            1,000,000
            
            
            --
            
            
            --
            
            
            500,000
            
            
            --2004
                Long-Term Incentive Plan
            
            
            7.13
                - 18.06*
            
            
            4,000,000
            
            
            3,721,445
            
            
            131,037
            
            
            66,666
            
            
            1,444,615
            
            
            80,8522006
                CFO Incentive Plan
            
            
            15.30
            
            
            500,000
            
            
            180,556
            
            
            --
            
            
            --
            
            
            180,556
            
            
            --2007
                CAO Inducement Plan
            
            
            11.11
            
            
            100,000
            
            
            100,000
            
            
            --
            
            
            --
            
            
            --
            
            
            --2007
                General Counsel Incentive
              Stock
                Option Plan
            
            
            11.02
            
            
            150,000
            
            
            150,000
            
            
            --
            
            
            --
            
            
            --
            
            
            --2007
                Incentive Plan
            
            
            --
            
            
            6,000,000
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            6,000,00022,677,657
            
            
            10,652,118
            
            
            5,376,198
            
            
            66,666
            
            
            7,097,278
            
            
            6,135,231


*
      Exercise price range excludes restricted stock.





A
      summary
      of the status of the Company’s equity awards as of June 30, 2007 and December
      31, 2006, and changes during the period is presented in the table
      below.





**Outstanding
                equity awards****Shares**
              **available**
            
            **Number**
              **of
                shares**
            
            **Weighted-**
              **average**
              **exercise
                price**Balance,
                December 31, 2006
            
            
            152,158
            
            
            10,849,713
            
            $
            7.82Authorized
            
            
            6,250,000
            
            
            --
            
            
            --Granted
            
            
            (651,200
            )
            
            651,200
            
            
            8.05Exercised
            
            
            --
            
            
            (78,412
            )
            
            2.59Restricted
                stock vested
            
            
            --
            
            
            (66,666
            )
            
            --Canceled
            
            
            (319,444
            )
            
            --
            
            
            --Forfeited
                and expired
            
            
            703,717
            
            
            (703,717
            )
            
            12.18Balance,
                June 30, 2007
            
            
            6,135,231
            
            
            10,652,118
            
            $
            7.64Exercisable
                at December 31, 2006
            
            
            
            
            
            6,178,994
            
            $
            3.92Exercisable
                at June 30, 2007
            
            
            
            
            
            7,097,278
            
            $
            5.36




As
        of
        June 30, 2007, there were 115,000 shares of restricted stock outstanding
        under
        the 2004 Long-Term Incentive Plan (included in the tables
        above).


11




A
      summary
      of share-based compensation activity for the six months ended June 30, 2007
      is
      presented below:





**Stock
      Options**


**Number
                of options**
            
            **Exercise**
              **price
                per**
              **share**
            
            **Weighted-average**
              **exercise
                price**
            
            **Weighted-average**
              **remaining
                contractual term**
              **(years)**
            
            **Aggregate
                intrinsic value**Outstanding
                at December 31, 2006
            
            
            10,749,713
            
            $
            0.10
                - $ 18.06
            
            $
            7.90
            
            
            7.6
            
            $
            58,048,000Granted
            
            
            486,200
            
            
            10.12
                - 11.11
            
            
            10.78Exercised
            
            
            (78,412
            )
            
            0.10
                - 9.25
            
            
            2.59Forfeited
                and expired
            
            
            (620,383
            )
            
            1.92
                - 18.00
            
            
            13.82Outstanding
                at June 30, 2007
            
            
            10,537,118
            
            $
            0.10
                - 18.06
            
            $
            7.72
            
            
            7.0
            
            $
            21,601,000Vested
                and expected to vest at June30,
                2007
            
            
            10,441,030
            
            $
            0.10
                - 18.06
            
            $
            7.68
            
            
            7.0
            
            $
            21,822,000Exercisable
                at June 30, 2007
            
            
            7,097,278
            
            $
            0.10
                - 18.06
            
            $
            5.36
            
            
            6.4
            
            $
            31,299,000





The
      aggregate intrinsic value of options exercised for the six months ended June
      30,
      2007 and 2006 was approximately $735,000 and $7,538,000, respectively. Upon
      the
      exercise of outstanding options, the Company issues new shares.





As
      of
      June 30, 2007, 3,604,944 options issued to directors and employees, and 93,000
      options issued to consultants, are milestone-based, of which 3,379,944 options
      issued to directors and employees, and 43,000 options issued to consultants,
      are
      vested and exercisable.





**Restricted
      Stock**


**Number
                of shares**
            
            **Average**
              **grant
                date**
              **fair
                value**Nonvested
                at December 31, 2006
            
            
            100,000
            
            $
            15.30Granted
            
            
            165,000
            
            
            10.50Vested
            
            
            (66,666
            )
            
            12.09Forfeited
            
            
            (83,334
            )
            
            15.30Nonvested
                at June 30, 2007
            
            
            115,000
            
            $
            10.28





**Warrants**


**Warrants**
            
            **Weighted-**
              **average**
              **exercise
                price**Outstanding
                at December 31, 2006
            
            
            321,976
            
            $
            4.65Issued
            
            
            --
            
            
            --Exercised
            
            
            --
            
            
            --Canceled
            
            
            --
            
            
            --Outstanding
                at June 30, 2007
            
            
            321,976
            
            $
            4.65





*Stock-based
      Compensation*





The
      value
      of options granted has been estimated using the Black-Scholes model. The
      expected term of options granted is derived from historical data and the
      expected vesting period. Expected volatility is based on the historical
      volatility of the Company’s common stock and the Company’s assessment of its
      future volatility. The risk-free interest rate is based on the U.S. Treasury
      yield for a period consistent with the expected term of the option in effect
      at
      the time of the grant. The Company has assumed no expected dividend yield,
      as
      dividends have never been paid to stock or option holders and will not be for
      the foreseeable future.




12




The
      weighted average fair market value of options granted during the three months
      ended June 30, 2007, and 2006, as of the date of the grant, was $6.25 and $6.63,
      respectively. The assumptions used in the calculation of the fair value of
      options granted during the three months ended June 30, 2007, and 2006, were
      a
      weighted average expected term of 4.4 and 2.6 years, respectively, a weighted
      average expected volatility rate of 71.36% and 77.14%, respectively, and a
      weighted average risk-free interest rate of 4.73% and 5.04%, respectively.





The
      weighted average fair market value of options granted during the six months
      ended June 30, 2007, and 2006, as of the date of the grant, was $6.42 and $7.83,
      respectively. The assumptions used in the calculation of the fair value of
      options granted during the six months ended June 30, 2007, and 2006, were a
      weighted average expected term of 4.5 and 3.0 years, respectively, a weighted
      average expected volatility rate of 71.58% and 79.17%, respectively, and a
      weighted average risk-free interest rate of 4.67% and 4.76%, respectively.





The
      Company used historical information to estimate forfeitures within the valuation
      model. As of June 30, 2007, there was $20.7 million of total unrecognized
      compensation cost, related to nonvested stock options and restricted stock,
      which is expected to be recognized over a weighted-average period of 2.5
      years.





**NOTE 3
      - BONUS TO OFFICER**





Pursuant
      to his employment agreement, the Chief
      Executive Officer of the Company
      was entitled to receive a one-time $2 million cash bonus due to the achievement
      of a corporate milestone that occurred ,
      and was
      expensed, in
      the
      first quarter of 2006 and paid in the second quarter of 2006. Of this amount,
      $1
      million was included in other research and development expenses and $1,000,000
      was included in other selling, general and administrative expenses for the
      six
      months ended June 30, 2006.





**NOTE
      4 - ACCUMIN TRANSACTION**





On
      April
      6, 2006, Accumin Diagnostics, Inc. (“ADI”), a wholly-owned subsidiary of the
      Company, completed the acquisition of Accumin TM ,
      a
      novel, patent protected, diagnostic for the direct measurement of total,
      intact urinary albumin, from AusAm Biotechnologies, Inc. (“AusAm”). The Company
      believes that the acquisition of Accumin could help increase the Company’s
      exposure to physicians that treat diabetes, the target market for Sulonex,
      by,
      among other things highlighting the need for and importance of early detection
      of microalbuminuria, which, if successful, could ultimately improve market
      perception and utilization of Sulonex. This acquisition also provided the
      Company with an incidental revenue stream associated with Accumin’s diagnostic
      tool.




The
      purchase price of Accumin was $3,996,000, which included the issuance of 245,024
      shares of the Company’s common stock, the assumption of certain liabilities of
      AusAm equal to approximately $345,000 and transaction costs and cash settlement
      costs of approximately $341,000. ADI also entered into a royalty arrangement
      under which ADI may be required to pay up to a maximum of $16.1 million to
      AusAm
      on revenue from a next generation product following Food and Drug Administration
      marketing approval. Keryx filed a registration statement on Form S-3 with the
      SEC on April 6, 2006 with respect to the shares issued to AusAm which was
      declared effective on June 23, 2006 (the “Effective Date”). On the Effective
      Date, 245,024 shares were released from escrow to AusAm.





The
      excess of the purchase price over the net assets acquired in the Accumin
      transaction represented goodwill of approximately $3,208,000, which has been
      allocated to our Products segment based on the proposed synergies associated
      with Sulonex.





Subsequent
      to the closing, disputes arose between AusAm and Keryx relating to the
      determination of the purchase consideration under the acquisition
      agreement. On July 31, 2006, AusAm filed a motion purporting to seek to
      enforce the terms of the acquisition agreement and alleging damages in the
      amount of $818,145. (In re:  AusAm Biotechnologies, Inc., Chapter 11 Case
      No. 06-10214 (RDD) (Bankr. S.D.N.Y.)). The matter has been settled pursuant
      to a settlement agreement approved by the Bankruptcy Court on April 10, 2007.
      In
      April 2007, under the settlement, Keryx paid AusAm $110,075 in full settlement
      of all claims made by AusAm in the action. Following completion of the
      settlement, 15,646 shares of the Company’s common stock, which were issued and
      outstanding and held in escrow, were canceled.




13




In
      accordance with Statement of Financial Accounting Standards No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets,” the Company recognizes an
      impairment loss when circumstances indicate that the carrying value of
      long-lived tangible and intangible assets with finite lives may not be
      recoverable. Management reviews various quantitative and qualitative factors
      in
      determining whether an impairment indicator exists, a triggering event. If
      an
      analysis is necessitated by the occurrence of a triggering event, the Company
      makes certain assumptions in determining the impairment amount. Recoverability
      of assets to be held and used is measured by a comparison of the carrying amount
      of an asset to future cash flows expected to be generated by the asset or used
      in its disposal. If the carrying amount of an asset exceeds its estimated future
      cash flows, an impairment charge is recognized. The Company continues to derive
      incidental revenue from the sale of the Accumin diagnostic tool. During the
      first quarter of 2007, management reviewed both its original and projected
      revenue estimates associated with the diagnostic tool. As a result of the
      projected cash flows of the diagnostic tool, the Company concluded that the
      intangible asset was impaired and recorded an impairment charge of approximately
      $600,000 to write-down identifiable intangible long-lived assets associated
      with
      Accumin. The charge was recorded in other selling, general and administrative
      expenses within the Diagnostics segment.





Unaudited
      pro forma financial information has not been presented as the AusAm information
      is immaterial to our results of operations.





**NOTE
      5 - SEGMENT INFORMATION**





The
      Company has three reportable segments: Diagnostics, Services and Products.
      The
      Diagnostics business sells diagnostic products for the direct measurement of
      total, intact urinary albumin. The Services business provides clinical trial
      management and site recruitment services to other biotechnology and
      pharmaceutical companies. The Products business focuses on the acquisition,
      development and commercialization of medically important, novel pharmaceutical
      products for the treatment of life-threatening diseases, including diabetes
      and
      cancer.





Segment
      information for the three and six month periods were as follows:





**Revenue****Three
                months ended June 30,**
            
            **Six
                months ended June 30,**
            
            **Amounts
                accumulated during the development**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **stage**Diagnostics
            
            $
            36
            
            $
            23
            
            $
            66
            
            $
            23
            
            $
            169Services
            
            
            14
            
            
            224
            
            
            26
            
            
            336
            
            
            1,840Products
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Total
            
            $
            50
            
            $
            247
            
            $
            92
            
            $
            359
            
            $
            2,009





**Operating
                loss****Three
                months ended June 30,**
            
            **Six
                months ended June 30,**
            
            **Amounts
                accumulated during the development**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **stage**Diagnostics
            
            $
            (21
            )
            $
            (414
            )
            $
            (695
            )
            $
            (414
            )
            $
            (1,712
            )Services
            
            
            (16
            )
            
            126
            
            
            (36
            )
            
            67
            
            
            (266
            )Products
            
            
            (20,623
            )
            
            (19,439
            )
            
            (43,183
            )
            
            (39,958
            )
            
            (243,019
            )Total
            
            $
            (20,660
            )
            $
            (19,727
            )
            $
            (43,914
            )
            $
            (40,305
            )
            $
            (244,997
            )







14


A
        reconciliation of the totals reported for the operating segments to the
        consolidated total net loss is as follows:


**Net
                loss****Three
                months ended June 30,**
            
            **Six
                months ended June 30,**
            
            **Amounts
                accumulated during the development**(in
                thousands)
            
            **2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **stage**Operating
                loss of
              reportable
                segments
            
            $
            (20,660
            )
            $
            (19,727
            )
            $
            (43,914
            )
            $
            (40,305
            )
            $
            (244,997
            )Interest
                and other income
            
            
            1,200
            
            
            1,899
            
            
            2,641
            
            
            2,881
            
            
            16,003Income
                taxes
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            (491
            )Consolidated
                net loss
            
            $
            (19,460
            )
            $
            (17,828
            )
            $
            (41,273
            )
            $
            (37,424
            )
            $
            (229,485
            )





The
      carrying amount of goodwill by reportable segment as of June 30, 2007 and
      December 31, 2006 was as follows:





**Goodwill**(in
                thousands)
            
            **June
                30, 2007**
            
            **December
                31, 2006**Diagnostics
            
            
            --
            
            
            --Services
            
            
            --
            
            
            --Products
            
            $
            3,208
            
            $
            3,208Total
            
            $
            3,208
            
            $
            3,208





**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





*Unless
      the context requires otherwise, references in this report to “Keryx,” the
“Company,” “we,” “us” and “our” refer to Keryx Biopharmaceuticals, Inc., its
      predecessor company and our subsidiaries.*





The
      following discussion and analysis contains forward-looking statements about
      our
      plans and expectations of what may happen in the future. Forward-looking
      statements are based on a number of assumptions and estimates that are
      inherently subject to significant risks and uncertainties, and our results
      could
      differ materially from the results anticipated by our forward-looking statements
      as a result of many known or unknown factors, including, but not limited to,
      those factors discussed in “Risk Factors.” See also the “Special Cautionary
      Notice Regarding Forward-Looking Statements” set forth at the beginning of this
      report.





You
      should read the following discussion and analysis in conjunction with the
      unaudited, consolidated financial statements, and the related footnotes thereto,
      appearing elsewhere in this report, and in conjunction with management’s
      discussion and analysis and the audited, consolidated financial statements
      included in our annual report on Form 10-K for the year ended December 31,
      2006.





**OVERVIEW**





We
      are a
      biopharmaceutical company focused on the acquisition, development and
      commercialization of medically important, novel pharmaceutical products for
      the
      treatment of life-threatening diseases, including diabetes and cancer. Our
      lead
      compound under development is SulonexTM (sulodexide), which we previously
      referred to as KRX-101, a first-in-class, oral heparinoid compound for the
      treatment of diabetic nephropathy, a life-threatening kidney disease caused
      by
      diabetes. Sulonex is in a pivotal Phase III and Phase IV clinical program under
      a Special Protocol Assessment, or SPA, with the Food and Drug Administration,
      or
      FDA. Additionally, we are developing ZerenexTM, an oral, iron-based compound that
      has the capacity to bind to phosphate and form non-absorbable complexes. Zerenex
      is currently in Phase II clinical development for the treatment of
      hyperphosphatemia (elevated phosphorous levels) in patients with end stage
      renal
      disease, or ESRD. We are also developing clinical-stage oncology compounds,
      including KRX-0401 (perifosine), a novel, first-in-class, oral anti-cancer
      agent
      that modulates Akt, a protein in the body associated with tumor survival and
      growth, and a number of other key signal transduction pathways, including the
      JNK and MAPK pathways, which are pathways associated with programmed cell death,
      cell growth, cell differentiation and cell survival. KRX-0401 is currently
      in
      Phase II clinical development for multiple tumor types. We also have an active
      in-licensing and acquisition program designed to identify and acquire additional
      drug candidates. To date, we have not received approval for the sale of any
      of
      our drug candidates in any market and, therefore, have not generated any
      revenues from our drug candidates.




15




The
      table
      below summarizes the status of our product pipeline.





**Product
                candidate**
            **Target
                indication**
            **Development
                status*****Endocrine/Renal***SulonexTM
            Diabetic
                nephropathy
            Phase
                III & Phase IVZerenexTM
            Hyperphosphatemia
                in patients with
              end-stage
                renal disease
            Phase
                II***Oncology***KRX-0401
            Multiple
                forms of cancer
            Phase
                IIKRX-0402
            Brain
                cancer
            Phase
                IIKRX-0601
            Multiple
                forms of cancer
            Phase
                IIKRX-0404
            Multiple
                forms of cancer
            Pre-clinical***Neurology***KRX-0701
            Diabetic
                neuropathy
            Phase
                IIKRX-0501
            Neurological
                disorders
            Phase
                I





*Recent
      Developments*





Sulonex





In
      June
      2007, we announced the randomization of the last patient in our pivotal Phase
      III clinical trial of Sulonex for the treatment of diabetic nephropathy. This
      Phase III clinical program, with a total of 1,056 randomized patients worldwide,
      is being conducted under the Subpart-H guidelines for accelerated approval
      pursuant to an SPA with the FDA. Based on the completion of randomization,
      we
      expect to have the last patient complete the six months of active treatment
      before the end of the year.





At
      the
      American Diabetes Association Annual Meeting in June 2007, the Collaborative
      Study Group, or the CSG, presented in a poster presentation final Phase II
      data
      from the U.S.-based pilot Phase II multi-center clinical study conducted by
      the
      CSG. A total of 149 patients were randomized into one of three groups (47
      patients to placebo, 50 patients to 200 mg/day of sulodexide, and 52 patients
      to
      400 mg/day of sulodexide) and administered study medication (All-Patient Treated
      Group). Out of the 149 patients in the All-Patient Treated Group (APT), 130
      patients were included in the Intent-to-Treat (ITT) analysis at the end of
      the
      treatment period (six months). Nineteen patients were excluded from the ITT
      analysis due to the presence of a urinary tract infection and/or a missing
      baseline urinary albumin creatinine ratio (uACR) data.







16


The
          results for the primary composite endpoint of therapeutic success (defined
          as
          normalization with a 25% reduction in the uACR or a 50% reduction in the
          uACR)
          for the ITT group at six months (end of treatment phase) is shown in the
          table
          below:
  Table
        1 — Percent
        of Patients Achieving Therapeutic Success 6 Months (End of
        Treatment)


Placebo
            200
                mg/day
              sulodexide
            400
                mg/day
              sulodexideNumber
                of Patients
            39
            42
            49Number
                of Patients withTherapeutic
                Success
            6
            14
            9Proportion
                or Percentage
            15%
            33%
            18%95%
                Confidence Interval
            6%
                - 31%
            20%
                - 50%
            9%
                - 32%





The
      trend
      for the increased rate of therapeutic success with the 200 mg/day dose of
      sulodexide versus placebo was also presented by the CSG in the poster.





Table
      2—Trend for Increased Rate of Therapeutic Success (1)





Treatment
                Comparison
            Outcome
            %
                of Events
              Placebo
            %
                of Events
              200
                mg/day
            Odds
                Ratio
            p
                Values200
                mg/day vs. Placebo
            Normalization
            7.7%
            16.7%
            2.40
            0.315200
                mg/day vs. Placebo
            50%
                Reduction
            12.8%
            28.6%
            2.72
            0.105200
                mg/day vs. Placebo
            Therapeutic
                Success
            15.4%
            33.3%
            2.75
            0.075





(1)
      95%
      confidence interval for therapeutic success at six month for the Odds ratio
      was
      0.84 to 9.83.





Table
      3 — Percent
      of Patients Achieving Therapeutic Success at Six-Month Sustained Two-Months
      (Post-Treatment)





Placebo
            200
                mg/day
              sulodexide
            400
                mg/day
              sulodexideProportion
                or Percentage
            7.9%
            22.0%
            13.0%95%
                Confidence Interval
            1.7%
                - 21.4%
            10.6%
                - 37.6%
            4.9%
                - 26.3%





The
      change in the geometric mean albumin to creatinine ratio over time was presented
      in the poster and is shown in the table below.





Table
      4 — Change
      in Geometric Mean Albumin to Creatinine Ratio over Time





Treatment
                Group
            Baseline
            2-Month
            4-Month
            6-Month
                (End
              of
                Treatment)
            Post-TreatmentPlacebo
                (n= 39)
            73
            70
            78
            85
            87200
                mg/day (n= 42)
            74
            58
            65
            57
            66400
                mg/day (n= 49)
            67
            70
            67
            73
            74





During
      this study, the following coagulation parameters were assessed prior to dosing
      (baseline) and at the end of treatment (6-month): fibrinogen, APTT, INR ratio,
      and prothrombin time (PT). There were no significant changes in the coagulation
      parameters for placebo, 200 mg/day of sulodexide and 400 mg/day of sulodexide
      when comparing mean endpoint values to mean baseline values for the parameters
      assessed.





The
      number of patients with at least one adverse event of any type, a serious
      adverse event or possibly related adverse event was reported in the poster
      and
      is shown in the table below.





Table
      5—Adverse Event Data





Any
                Adverse Event
            
            Serious
                Adverse Event
            
            Possibly
                Related Adverse EventTreatment
            
            N
            %
                of
              Patients
            N
                of Events
            
            N
            %
                of
              Patients
            N
                of Events
            
            N
            %
                of
              Patients
            N
                of EventsPlacebo
                (n= 47)
            
            38
            81%
            102
            
            4
            9%
            4
            
            5
            11%
            9200
                mg/d (n= 50)
            
            46
            92%
            174
            
            16
            36%
            20
            
            7
            14%
            11400
                mg/d (n= 52
            
            42
            81%
            114
            
            4
            10%
            4
            
            11
            21%
            14




17




The
      CSG
      summarized in the poster that this Phase II trial was not powered to obtain
      definitive results for efficacy. However, observed trends were consistent with
      the hypothesis that administration of sulodexide is associated with a decreased
      urine albumin excretion in the patient population studied and the decrease
      in
      albumin excretion rate, defined as the achievement of normoalbuminuria or 50%
      decrease in albuminuria, appeared to be maintained for two months after
      cessation of therapy. A manuscript on the final results from this study has
      been
      prepared by the CSG and will be submitted to a peer-reviewed journal for
      publication.





We
      are
      engaged in an arbitration proceeding with the licensor of the active ingredient
      in Sulonex, Alfa Wasserman S.p.A. The dispute concerns certain terms of the
      License Agreement related to the provision of data to Alfa Wasserman and
      consultation regarding management of the licensed patents. The matter is
      expected to proceed to an arbitration hearing in the United Kingdom in early
      fourth quarter 2007. The outcome of the arbitration should not affect the
      validity of the license, but whether we are required to share data with Alfa
      Wasserman for that company’s use outside of our licensed territories and our
      ongoing management of the licensed patent portfolio. Alfa Wasserman also seeks
      unspecified damages. If the arbitrator determines that we owe Alfa Wasserman
      the
      data, and that failure to deliver such data constitutes a material breach of
      the
      License Agreement, then we will have 28 days to cure such breach following
      the
      final arbitration decision by delivering any data required to be provided.
      Failure to cure would entitle Alfa Wasserman to terminate the License
      Agreement.





Zerenex





In
      August
      2007, we provided the FDA with our 28-day toxicology package for rats and dogs.
      Assuming the FDA accepts our 28-day toxicology package, we plan to commence
      a
      Phase II high-dose exposure clinical trial in the fourth quarter of 2007. Once
      we have the Phase II high-dose exposure clinical trial underway, we will have
      a
      better understanding of when we believe we can commence our Phase III pivotal
      program.





KRX-0701





During
      the first half of 2007, we in-licensed KRX-0701 (Dexlipotam) (tromethamine-salt
      of R (+)-α-lipoic
      acid), a
      compound being investigated for the treatment of diabetic neuropathy and
      possibly other neuropathic conditions. Currently, there is an Investigational
      New Drug Application for Dexlipotam in the United States and we are planning
      to
      initiate a Phase II dose-ranging study in 2008. KRX-0701 is considered to be
      an
      antioxidant and can normalize the cell redox imbalance that occurs in diabetes.
      We hold an exclusive worldwide license to KRX-0701, which we licensed from
      Degussa AG, a wholly owned subsidiary of the RAG Group based in Germany. In
      accordance with the terms of the agreement, we made an up-front payment and
      will
      make milestone payments as well as pay royalties on product sales.





KRX-0501





In
      May
      2007, we initiated a first-in-man Phase I study for KRX-0501, a nerve growth
      factor enhancer, in healthy volunteers to assess the pharmacokinetic
      profile. KRX-0501 was licensed from Krenitsky Pharmaceuticals, Inc. in 2005
      and we hold a worldwide license to develop and sell the product for all
      indications. KRX-0501 is believed to have potential for use in the
      treatment of neurological conditions such as diabetic neuropathic pain,
      Huntington and Alzheimer’s disease, as well as chemotherapy-induced
      neuropathy.





Financial
      Management Change





On
      June
      18, 2007, we announced that Ronald C. Renaud, Jr., Senior Vice President and
      Chief Financial Officer, resigned his position with us effective June 27, 2007.
      Mark Stier, our Chief Accounting Officer, has assumed responsibilities for
      all
      financial functions at Keryx.





*General
      Corporate*





We
      are a
      development stage company and have no drug product sales to date. Our major
      sources of working capital have been proceeds from various private placements
      of
      equity securities, option and warrant exercises, and from public offerings
      of
      our common stock. We have devoted substantially all of our efforts to the
      identification, in-licensing and development of drug candidates. We have
      incurred negative cash flow from operations each year since our inception.
      We
      anticipate incurring negative cash flows from operating activities for the
      foreseeable future. We have spent, and expect to continue to spend, substantial
      amounts in connection with implementing our business strategy, including our
      product development efforts, our clinical trials and in-licensing and
      acquisition activities.




18




Our
      service revenues consist entirely of clinical trial management and site
      recruitment services. Revenues from providing these services are recognized
      as
      the services are provided. Deferred revenue is recorded when we receive a
      deposit or prepayment for services to be performed at a later date.





Our
      diagnostic revenue is based on the sale of a diagnostic product for the direct
      measurement of total, intact urinary albumin. Diagnostic revenue is recognized
      when persuasive evidence of an arrangement exists, the product has been shipped,
      title and risk of loss have passed to the customer and collection from the
      customer is reasonably assured.





We
      have
      not earned any revenues from the commercial sale of any of our drug candidates.





Our
      cost
      of services consist of all costs specifically associated with our clinical
      trial
      management and site recruitment client programs such as salaries, benefits
      paid
      to personnel, payments to third-party vendors and other support facilities
      associated with delivering services to our clients. Cost of services are
      recognized as services are performed.





Our
      cost
      of diagnostics sold consist specifically of costs associated with the
      manufacture of the diagnostic products such as payments to third-party vendors,
      material costs and other support facilities associated with delivering of the
      diagnostics to our customers. Cost of diagnostics sold are recognized as
      diagnostic revenue is recognized.





Our
      research and development expenses consist primarily of salaries and related
      personnel costs, fees paid to consultants and outside service providers for
      clinical and laboratory development, facilities-related and other expenses
      relating to the design, development, testing, and enhancement of our drug
      candidates and technologies, as well as expenses related to in-licensing of
      new
      product candidates. We expense our research and development costs as they are
      incurred.





Our
      general and administrative expenses consist primarily of salaries and related
      expenses for executive, finance and other administrative personnel, recruitment
      expenses, professional fees and other corporate expenses, including investor
      relations, general legal activities and facilities-related expenses.





Our
      results of operations include non-cash compensation expense as a result of
      the
      grants of stock options, restricted stock and warrants. Compensation expense
      for
      awards of options and restricted stock granted to employees and directors
      represents the fair value of the award recorded over the respective vesting
      periods of the individual stock options. The expense is included in the
      respective categories of expense in the statements of operations. We expect
      to
      continue to incur significant non-cash compensation as a result of Statement
      of
      Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS
      No. 123R”), which we adopted on January 1, 2006. For awards of options and
      warrants to consultants and other third-parties, compensation expense is
      determined at the “measurement date,” in accordance with the fair value method
      prescribed by the provisions of Emerging Issues Task Force Issue No. 96-18,
      “Accounting for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling Goods or Services” (“EITF 96-18”). The
      expense is recognized over the vesting period of the award. Until the
      measurement date is reached, the total amount of compensation expense remains
      uncertain. We record compensation expense based on the fair value of the award
      at the reporting date. These awards are then revalued, or the total compensation
      is recalculated based on the then current fair value, at each subsequent
      reporting date. In addition, because some of the options, restricted stock
      and
      warrants issued to employees, consultants and other third-parties vest upon
      the
      achievement of certain milestones, the total expense is uncertain.





Our
      ongoing clinical trials will be lengthy and expensive. Even if these trials
      show
      that our drug candidates are effective in treating certain indications, there
      is
      no guarantee that we will be able to record commercial sales of any of our
      drug
      candidates in the near future. In addition, we expect losses to continue as
      we
      continue to fund in-licensing and development of new drug candidates. As we
      continue our development efforts, we may enter into additional third-party
      collaborative agreements and may incur additional expenses, such as licensing
      fees and milestone payments. In addition, we will need to establish the
      commercial infrastructure required to manufacture, market and sell our drug
      candidates following approval, if any, by the FDA, which would result in us
      incurring additional expenses. As a result, our quarterly results may fluctuate
      and a quarter-by-quarter comparison of our operating results may not be a
      meaningful indication of our future performance.




19




**RESULTS
      OF OPERATIONS**





**Three
      months ended June 30, 2007 and June 30, 2006**





*Diagnostic
      Revenue.* Diagnostic revenue increased by $13,000 to $36,000 for the three months ended
      June 30, 2007, as compared to diagnostic revenue of $23,000 for the three months
      ended June 30, 2006. We do not expect our diagnostic revenue to have a material
      impact on our financial results during the remainder of 2007.





*Service
      Revenue.* Service
      revenue decreased by $210,000 to $14,000 for the three months ended June 30,
      2007, as compared to service revenue of $224,000 for the three months ended
      June
      30, 2006. The decrease in service revenue was primarily due to the timing and
      extent of services performed in accordance with our service contracts. We do
      not
      expect our service revenue to have a material impact on our financial results
      during the remainder of 2007.





*Cost
      of Diagnostics Sold* .
      Cost of
      diagnostics sold decreased by $3,000 to $16,000 for the three months ended
      June
      30, 2007, as compared to an expense of $19,000 for the three months ended June
      30, 2006. We do not expect our cost of diagnostics sold to have a material
      impact on our financial results during the remainder of 2007.





*Cost
      of Services* .
      Cost of
      services decreased by $68,000 to $30,000 for the three months ended June 30,
      2007, as compared to an expense of $98,000 for the three months ended June
      30,
      2006. The decrease in cost of services was primarily due to the timing and
      extent of services performed in accordance with our service contracts. We do
      not
      expect our cost of services to have a material impact on our financial results
      during the remainder of 2007.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to stock option and restricted stock grants was
      $1,178,000 for the three months ended June 30, 2007, as compared to an expense
      of $2,104,000 for the three months ended June 30, 2006. The three months ended
      June 30, 2006 included $565,000 of additional non-cash compensation expense
      related to the adjustment of an award, which expense should have been recognized
      in the three months ended March 31, 2006. Additionally, in the three months
      ended June 30, 2006, based on his activities in this area, a portion of the
      compensation expense relating to our chief executive officer included an
      allocation to non-cash compensation expense (research and development).
      Beginning in 2007, based on his current activities, this expense is being
      charged to non-cash compensation expense (selling, general and administrative).
      This change accounted for approximately $537,000 of the difference.





*Other
      Research and Development Expenses* .
      Other
      research and development expenses increased by $3,333,000 to $15,685,000 for
      the
      three months ended June 30, 2007, as compared to $12,352,000 for the three
      months ended June 30, 2006. The increase in other research and development
      expenses was due primarily to a $2,160,000 increase in expenses related to
      our
      Sulonex pivotal Phase III and Phase IV clinical programs, and due to a
      $1,214,000 increase in expenses related to our other clinical compounds.





We
      expect
      our other research and development costs to increase modestly during the
      remainder of 2007 as a result of the pivotal Phase III and Phase IV clinical
      program for Sulonex and the expansion of the clinical program for KRX-0401,
      as
      well as possible development programs for our other drug
      candidates.





*Non-Cash
      Compensation Expense (Selling, General and Administrative).* Non-cash
      compensation expense related to stock option and restricted stock grants was
      $1,407,000 for the three months ended June 30, 2007, as compared to an expense
      of $3,541,000 for the three months ended June 30, 2006. This difference was
      primarily attributable to, during the three months ended June 30, 2006,
      approximately $1,697,000 of expense for modifications made by the Board of
      Directors of the vesting and exercisability of certain grants during the second
      quarter of 2006. Additionally, in the three months ended June 30, 2006, based
      on
      his activities in this area, a portion of the compensation expense relating
      to
      our chief executive officer included an allocation to non-cash compensation
      expense (research and development). Beginning in 2007, based on his current
      activities, this expense is being charged to non-cash compensation expense
      (selling, general and administrative), accounting for approximately $537,000
      of
      increased expense, which offsets the decrease in expense discussed above. In
      addition, during the six months ended June 30, 2007, we recorded a reduction
      of
      expense of approximately $479,000 associated with stock option forfeitures
      following the resignation of our chief financial officer.






20


*Other
      Selling, General and Administrative Expenses* .
      Other
      selling, general and administrative expenses increased by $534,000 to $2,394,000
      for the three months ended June 30, 2007, as compared to an expense of
      $1,860,000 for the three months ended June 30, 2006. The
      increase in other selling, general and administrative expenses was due primarily
      to an increase in legal fees of approximately $246,000 associated with the
      maintenance of our products, as well as increased expenses associated with
      the
      scale-up of our operations and infrastructure to prepare to commercialize our
      drug candidates. We expect our other selling, general and administrative costs
      to increase over the remainder of 2007.





*Interest
      and Other Income, Net* .
      Interest and other income, net, decreased by $699,000 to $1,200,000 for the
      three months ended June 30, 2007, as compared to income of $1,899,000 for the
      three months ended June 30, 2006. The decrease resulted from a lower level
      of
      invested funds as compared to the comparable period last year.





**Six
      months ended June 30, 2007 and June 30, 2006**





*Diagnostic
      Revenue.* Diagnostic revenue increased by $43,000 to $66,000 for the six months ended
      June
      30, 2007, as compared to diagnostic revenue of $23,000 for the six months ended
      June 30, 2006. The increase in diagnostic revenue was
      primarily due to the inclusion of six months of Accumin’s results in the period
      ended June 30, 2007. The prior period included results from April 6, 2006,
      the
      acquisition date. We
      do not
      expect our diagnostic revenue to have a material impact on our financial results
      during the remainder of 2007.





*Service
      Revenue.* Service
      revenue decreased by $310,000 to $26,000 for the six months ended June 30,
      2007,
      as compared to service revenue of $336,000 for the six months ended June 30,
      2006. The decrease in service revenue was primarily due to the timing and extent
      of services performed in accordance with our service contracts. We do not expect
      our service revenue to have a material impact on our financial results during
      the remainder of 2007.





*Cost
      of Diagnostics Sold* .
      Cost of
      diagnostics sold increased by $19,000 to $38,000 for the six months ended June
      30, 2007, as compared to an expense of $19,000 for the six months ended June
      30,
      2006. The increase in cost of diagnostics sold was
      primarily due to the inclusion of six months of Accumin’s results in the period
      ended June 30, 2007. The prior period included results from April 6, 2006,
      the
      acquisition date. We
      do not
      expect our cost of diagnostics sold to have a material impact on our financial
      results during the remainder of 2007.





*Cost
      of Services* .
      Cost of
      services decreased by $207,000 to $62,000 for the six months ended June 30,
      2007, as compared to an expense of $269,000 for the six months ended June 30,
      2006. The decrease in cost of services was primarily due to the timing and
      extent of services performed in accordance with our service contracts. We do
      not
      expect our cost of services to have a material impact on our financial results
      during the remainder of 2007.





*Non-Cash
      Compensation Expense (Research and Development).* Non-cash
      compensation expense related to stock option and restricted stock grants was
      $2,173,000 for the six months ended June 30, 2007, as compared to an expense
      of
      $4,828,000 for the six months ended June 30, 2006. This difference was primarily
      attributable to, during the six months ended June 30, 2006, approximately
      $1,128,000 of expense for the accelerated vesting of options due to the
      achievement of a financial milestone, and additionally, in the six months ended
      June 30, 2006, based on his activities in this area, a portion of the
      compensation expense relating to our chief executive officer included an
      allocation to non-cash compensation expense (research and development).
      Beginning in 2007, based on his current activities, this expense is being
      charged to non-cash compensation expense (selling, general and administrative).
      This change accounted for approximately $1,149,000 of the difference.





*Other
      Research and Development Expenses* .
      Other
      research and development expenses increased by $8,446,000 to $33,131,000 for
      the
      six months ended June 30, 2007, as compared to $24,685,000 for the six months
      ended June 30, 2006. The increase in other research and development expenses
      was
      due primarily to a $4,983,000 increase in expenses related to our Sulonex
      pivotal Phase III and Phase IV clinical programs (the comparative period last
      year included one-half, or $1,000,000, of a one-time bonus paid to our Chief
      Executive Officer pursuant to his employment agreement for the achievement
      of a
      corporate milestone). In addition, the increase was due to a $3,487,000 increase
      in expenses related to our other clinical compounds (including $1,127,000 of
      expenses relating to the in-licensing and purchase of related inventory for
      KRX-0701).




21




We
      expect
      our other research and development costs to increase modestly during the
      remainder of 2007 as a result of the pivotal Phase III and Phase IV clinical
      program for Sulonex and the expansion of the clinical program for KRX-0401,
      as
      well as possible development programs for our other drug
      candidates.





*Non-Cash
      Compensation Expense (Selling, General and Administrative).* Non-cash
      compensation expense related to stock option and restricted stock grants was
      $3,413,000 for the six months ended June 30, 2007, as compared to an expense
      of
      $6,358,000 for the six months ended June 30, 2006. This difference was primarily
      attributable to, during the six months ended June 30, 2006, approximately
      $1,636,000 of expense for the accelerated vesting of options, due to the
      achievement of a financial milestone, and approximately $1,697,000 of expense
      for modifications made by the Board of Directors of the vesting and
      exercisability of certain grants during the second quarter of 2006.
      Additionally, in the six months ended June 30, 2006, based on his activities
      in
      this area, a portion of the compensation expense relating to our chief executive
      officer included an allocation to non-cash compensation expense (research and
      development). Beginning in 2007, based on his current activities, this expense
      is being charged to non-cash compensation expense (selling, general and
      administrative), accounting for approximately $1,149,000 of increased expense,
      which offsets the decrease in expenses discussed above. In addition, during
      the
      six months ended June 30, 2007, we recorded a reduction of expense of
      approximately $479,000 associated with stock option forfeitures following the
      resignation of our chief financial officer.





*Other
      Selling, General and Administrative Expenses* .
      Other
      selling, general and administrative expenses increased by $684,000 to $5,189,000
      for the six months ended June 30, 2007, as compared to an expense of $4,505,000
      for the six months ended June 30, 2006. Other selling, general and
      administrative expenses for the six months ended June 30, 2007 includes an
      impairment charge of approximately $600,000 related to certain intangibles
      associated with Accumin’s diagnostic product. Additionally, there was an
      increase in legal fees of approximately $534,000 associated with the maintenance
      of our products. The comparative period last year included one-half, or
      $1,000,000, of a one-time bonus paid to our Chief Executive Officer pursuant
      to
      his employment agreement for the achievement of a corporate milestone. In
      addition, during the six months ended June 30, 2007, we incurred additional
      expenses associated with the scale-up of our operations and infrastructure
      to
      prepare to commercialize our drug candidates. We expect our other selling,
      general and administrative costs to increase over the remainder of
      2007.




*Interest
      and Other Income, Net* .
      Interest and other income, net, decreased by $240,000 to $2,641,000 for the
      six
      months ended June 30, 2007, as compared to income of $2,881,000 for the six
      months ended June 30, 2006. The decrease resulted from a lower level of invested
      funds as compared to the comparable period last year.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      financed our operations from inception primarily through public offerings of
      our
      common stock, various private placement transactions, and option and warrant
      exercises.





As
      of
      June 30, 2007, we had $88.3 million in cash, cash equivalents, interest
      receivable, and short-term and long-term securities, a decrease of $37.3 million
      from December 31, 2006. Cash used in operating activities for the six months
      ended June 30, 2007 was $34.4 million, as compared to $27.9 million for the
      six
      months ended June 30, 2006. This increase in cash used in operating activities
      was due primarily to increased expenditures associated with the execution of
      our
      business plan, including costs associated with our pivotal Phase III and Phase
      IV clinical program for Sulonex and the expansion of our other clinical
      programs. For the six months ended June 30, 2007, net cash provided by in
      investing activities of $10.1 million was primarily the result of the maturity
      and sale of marketable securities in our investment portfolio, net of purchases,
      of approximately $12.9 million, partially offset by purchases of property,
      plant
      and equipment of approximately $2.8 million. For the six months ended June
      30,
      2007, net cash used in financing activities of $65,000 was primarily the result
      of the surrendering to us of 23,848 shares of common stock, by our President
      and
      former Chief Financial Officer, in order to satisfy tax withholding obligations
      upon the vesting of restricted stock, at a cost of approximately $268,000,
      offset by $203,000 of proceeds from the exercise of options.





We
      have
      entered into a relationship with a U.S.-based contract manufacturer for Sulonex
      to build a larger scale manufacturing suite within their current facility,
      which
      they will operate on our behalf. We believe this suite will be suitable to
      manufacture and produce initial commercialization quantities of Sulonex (for
      approximately one to three years from launch). As of June 30, 2007, we have
      spent approximately $10.8 million in capital expenditures building our
      manufacturing suite for Sulonex. We anticipate that in the second half of 2007,
      after equipment validation has been completed, the facility will be ready for
      its intended use.




22




We
      believe that our $88.3 million in cash, cash equivalents, interest receivable
      and investment securities as of June 30, 2007 will be sufficient to enable
      us to
      meet our planned operating needs and capital expenditures through the date
      of
      the release of our Phase III Sulonex data, expected in the first half of 2008.
      Depending on the outcome of our Phase III study, our cash requirements will
      vary
      dramatically. In the event of a negative outcome, we believe our current capital
      resources will enable us to meet our revised operating needs and capital
      expenditures for at least 12 to 24 months from January 2008.





Our
      cash
      and cash equivalents and investment securities as of June 30, 2007 are invested
      in highly liquid investments such as cash, money market accounts and short-term
      and long-term U.S. corporate and government debt and auction note securities.
      As
      of June 30, 2007, we are unaware of any known trends or any known demands,
      commitments, events, or uncertainties that will, or that are reasonably likely
      to, result in a material increase or decrease in our liquidity. We expect that
      our liquidity needs throughout 2007 will continue to be funded from existing
      cash, cash equivalents, and short-term marketable securities.





On
      December 30, 2005, we filed a shelf registration statement on Form S-3 with
      the
      SEC that was declared effective by the SEC on January 13, 2006. The registration
      statement provides for the offering of up to $150 million of our common stock.
      Subsequent to the registered direct offering that was completed in March 2006,
      there remains approximately $67 million of our common stock available for sale
      on this shelf registration statement. We may offer these securities from time
      to
      time in response to market conditions or other circumstances if we believe
      such
      a plan of financing is in the best interest of Keryx and our stockholders.
      We
      believe that the availability to conduct such offerings enhances our ability
      to
      raise additional capital to finance our operations.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      have
      not entered into any transactions with unconsolidated entities whereby we have
      financial guarantees, subordinated retained interests, derivative instruments
      or
      other contingent arrangements that expose us to material continuing risks,
      contingent liabilities, or any other obligations under a variable interest
      in an
      unconsolidated entity that provides us with financing, liquidity, market risk
      or
      credit risk support.





**OBLIGATIONS
      AND COMMITMENTS**





Our
      material contractual obligations were summarized and included in our Annual
      Report on Form 10-K for the fiscal year ended December 31, 2006. There have
      been
      no material changes outside the ordinary course of business in the contractual
      obligations since December 31, 2006.





**CRITICAL
      ACCOUNTING POLICIES**





The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with U.S. generally accepted accounting principles. The preparation
      of these financial statements requires us to make estimates and judgments that
      affect the reported amount of assets and liabilities and related disclosure
      of
      contingent assets and liabilities at the date of our financial statements and
      the reported amounts of revenues and expenses during the applicable period.
      Actual results may differ from these estimates under different assumptions
      or
      conditions.





We
      define
      critical accounting policies as those that are reflective of significant
      judgments and uncertainties and which may potentially result in materially
      different results under different assumptions and conditions. In applying these
      critical accounting policies, our management uses its judgment to determine
      the
      appropriate assumptions to be used in making certain estimates. These estimates
      are subject to an inherent degree of uncertainty. Our critical accounting
      policies include the following:




23




*Stock
      Compensation* .
      We have
      granted stock options and restricted stock to employees, directors and
      consultants, as well as warrants to other third parties. In applying SFAS No.
      123R, the value of each option award is estimated on the date of grant using
      the
      Black-Scholes option-pricing model. The Black-Scholes model takes into account
      volatility in the price of our stock, the risk-free interest rate, the estimated
      life of the option, the closing market price of our stock and the exercise
      price. We base our estimates of our stock price volatility on the historical
      volatility of our common stock and our assessment of future volatility; however,
      this estimate is neither predictive nor indicative of the future performance
      of
      our stock. For purposes of the calculation, we assumed that no dividends would
      be paid during the life of the options and warrants. The estimates utilized
      in
      the Black-Scholes calculation involve inherent uncertainties and the application
      of management judgment. In addition, we are required to estimate the expected
      forfeiture rate and only recognize expense for those options expected to vest.
      As a result, if other assumptions had been used, our recorded stock-based
      compensation expense could have been materially different from that reported.
      In
      addition, because some of the options and warrants issued to employees,
      consultants and other third-parties vest upon the achievement of certain
      milestones, the total expense is uncertain.





In
      accordance with EITF 96-18 “Accounting for Equity Instruments that are Issued to
      Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services,” total compensation expense for options issued to consultants is
      determined at the “measurement date.” The expense is recognized over the vesting
      period for the options. Until the measurement date is reached, the total amount
      of compensation expense remains uncertain. We record option compensation based
      on the fair value of the options at the reporting date. These options are then
      revalued, or the total compensation is recalculated based on the then current
      fair value, at each subsequent reporting date. This results in a change to
      the
      amount previously recorded in respect of the option grant, and additional
      expense or a negative expense may be recorded in subsequent periods based on
      changes in the assumptions used to calculate fair value, such as changes in
      market price, until the measurement date is reached and the compensation expense
      is finalized.





*Accruals
      for Clinical Research Organization and Clinical Site Costs.* We
      make
      estimates of costs incurred to date in relation to external clinical research
      organizations, or CROs, and clinical site costs. We analyze the progress of
      clinical trials, including levels of patient enrollment, invoices received
      and
      contracted costs when evaluating the adequacy of the amount expensed and the
      related prepaid asset and accrued liability. Significant judgments and estimates
      must be made and used in determining the accrued balance in any accounting
      period. In addition, administrative costs related to external CROs are
      recognized on a straight-line basis over the estimated contractual
      period.





*Accounting
      Related to the Valuation of Intangible Assets.* In
      accounting for acquisitions, we allocate the purchase price to the fair value
      of
      the acquired tangible and intangible assets. This allocation requires us to
      make
      several significant judgments and estimates. For example, we estimated the
      value
      of the acquired intangible assets of Accumin utilizing the income approach,
      which requires us to make assumptions and estimates about, among other
      things: **





·
            revenue
                that is likely to result from the asset, including estimated selling
                price, estimated market share and year-over-year growth
                rates;





·
            operating
                margin; and





·
            sales
                and marketing and general and administrative expenses using historical
                and
                industry or other sources of market
                data;





The
      valuations are based on information that is available as of the acquisition
      date
      and the expectations and assumptions that have been deemed reasonable by our
      management. No assurance can be given, however, that the underlying assumptions
      or events associated with such assets will occur as projected. For these
      reasons, among others, the actual results may vary from the projected results.





As
      of
      June 30, 2007, there was approximately $3.2 million of net goodwill on our
      consolidated balance sheet. Prior to the impairment charge taken in the first
      quarter of 2007, we amortized our identifiable intangible assets associated
      with
      Accumin over their estimated economic lives, which was 12 years, the life of
      the
      patents, using the straight-line method.




24




*Impairment.* In
      accordance with Statement of Financial Accounting Standards No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets,” the Company recognizes an
      impairment loss when circumstances indicate that the carrying value of
      long-lived tangible and intangible assets with finite lives may not be
      recoverable. Management’s policy in determining whether an impairment indicator
      exists, a triggering event, comprises measurable operating performance criteria
      as well as qualitative measures. If an analysis is necessitated by the
      occurrence of a triggering event, the Company makes certain assumptions in
      determining the impairment amount. Recoverability of assets to be held and
      used
      is measured by a comparison of the carrying amount of an asset to future cash
      flows expected to be generated by the asset or used in its disposal. If the
      carrying amount of an asset exceeds its estimated future cash flows, an
      impairment charge is recognized. The Company continues to derive revenue from
      the sale of the Accumin diagnostic tool. During the first quarter of 2007,
      management reviewed both its original and projected revenue estimates associated
      with the diagnostic tool. As a result of this analysis, the Company concluded
      that the asset was impaired and recorded an impairment charge of approximately
      $600,000 to write-down identifiable intangible long-lived assets associated
      with
      Accumin. The charge was recorded in other selling, general and administrative
      expenses within the Diagnostics segment.





Statement
      of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
      Assets,” or SFAS No. 142, requires periodic tests of goodwill for impairment and
      that other intangible assets be amortized over their useful lives unless these
      lives are determined to be indefinite. SFAS No. 142 requires goodwill be tested
      using a two-step process. The first step compares the fair value of the
      reporting unit with the unit's carrying value, including goodwill. When the
      carrying value of the reporting unit is greater than fair value, the unit’s
      goodwill may be impaired, and the second step must be completed to measure
      the
      amount of the goodwill impairment charge, if any. In the second step, the
      implied fair value of the reporting unit’s goodwill is compared with the
      carrying amount of the unit’s goodwill. If the carrying amount is greater than
      the implied fair value, the carrying value of the goodwill must be written
      down
      to its implied fair value.





We
      are
      required to perform impairment tests under SFAS No. 142 annually and whenever
      events or changes in circumstances suggest that the carrying value of an asset
      may not be recoverable. For all of our acquisitions, various analyses,
      assumptions and estimates were made at the time of each acquisition specifically
      regarding cash flows that were used to determine the valuation of goodwill
      and
      intangibles. When we perform impairment tests in future years, the possibility
      exists that changes in forecasts and estimates from those used at the
      acquisition date could result in impairment charges.





*Accounting
      For Income Taxes* .
      In
      preparing our consolidated financial statements, we are required to estimate
      our
      income taxes in each of the jurisdictions in which we operate. This process
      involves management estimation of our actual current tax exposure and assessment
      of temporary differences resulting from differing treatment of items for tax
      and
      accounting purposes. These differences result in deferred tax assets and
      liabilities. We must then assess the likelihood that our deferred tax assets
      will be recovered from future taxable income and, to the extent we believe
      that
      recovery is not likely, we must establish a valuation allowance. To the extent
      we establish a valuation allowance or increase this allowance in a period,
      we
      must include an expense within the tax provision in the statement of operations.
      Significant management judgment is required in determining our provision for
      income taxes, our deferred tax assets and liabilities and any valuation
      allowance recorded against our net deferred tax assets. We have fully offset
      our
      U.S. deferred tax assets with a valuation allowance. Our lack of earnings
      history and the uncertainty surrounding our ability to generate taxable income
      prior to the reversal or expiration of such deferred tax assets were the primary
      factors considered by management in establishing the valuation allowance. In
      prior periods, our wholly-owned Israeli subsidiaries had generated taxable
      income in respect of services provided within the group, and therefore we
      believed in the past that our deferred tax assets relating to the Israeli
      subsidiaries would be realized. With the cessation of operating activities
      in
      Israel during 2003 and the resulting absence of taxable income from the Israeli
      subsidiaries, the deferred tax asset was written off in 2003.





*Accounting
      For Our Manufacturing Suite* .
      We have
      entered into a relationship with a U.S.-based contract manufacturer for Sulonex
      to build a larger scale manufacturing suite within their current facility,
      which
      they will operate on our behalf. We believe this suite will be suitable to
      manufacture and produce initial commercialization quantities of Sulonex (for
      approximately one to three years from launch). As of June 30, 2007, we have
      spent approximately $10.8 million in capital expenditures building the suite.
      We
      anticipate that in the second half of 2007, after equipment validation has
      been
      completed, the facility will be ready for its intended use and we will begin
      to
      depreciate this asset at that time. Significant estimates and judgments were
      made, and will continue to be made, relating to the appropriate in-service
      date
      of these assets and the related asset retirement obligation.




25




**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      primary objective of our investment activities is to preserve principal while
      maximizing our income from investments and minimizing our market risk. We invest
      in government and investment-grade corporate debt and auction note securities
      in
      accordance with our investment policy. Some of the securities in which we invest
      may have market risk. This means that a change in prevailing interest rates
      may
      cause the principal amount of the investment to fluctuate. For example, if
      we
      hold a security that was issued with a fixed interest rate at the
      then-prevailing rate and the prevailing interest rate later rises, the principal
      amount of our investment will probably decline. As of June 30, 2007, our
      portfolio of financial instruments consists of cash equivalents and short-term
      and long-term interest bearing securities, including corporate debt, money
      market funds, government debt and auction note securities. The average duration
      of all of our held-to-maturity investments held as of June 30, 2007, was less
      than 12 months. Additionally, the re-pricing of our auction notes within thirty
      days allows these securities to function as short-term investments. Due to
      the
      short-term nature of our investments, we believe we have no material exposure
      to
      interest rate risk arising from our investments.





**ITEM
      4. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of
      June 30, 2007, management carried out, under the supervision and with the
      participation of our Chief Executive Officer and Chief Accounting Officer,
      an
      evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
      the
      Exchange Act). Our disclosure controls and procedures are designed to provide
      reasonable assurance that information we are required to disclose in the reports
      that we file or submit under the Exchange Act is recorded, processed, summarized
      and reported within the time periods specified in applicable rules and forms.
      Based upon that evaluation, our Chief Executive Officer and Chief Accounting
      Officer concluded that, as of June 30, 2007, our disclosure controls and
      procedures were effective.





**Internal
      Control Over Financial Reporting**





There
      were no changes in our internal control over financial reporting during
      the quarter ended June 30, 2007, that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.








**PART
      II. OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





We,
      and
      our subsidiaries, are not a party to, and our property is not the subject of,
      any material pending legal proceedings, other than as noted below.





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of our Israeli subsidiaries, Keryx
      Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief Executive
      Officer, and Robert Trachtenberg, a former employee of Keryx. The amount
      demanded by the landlord totals 4,345,313 New Israeli Shekels, or approximately
      $1,023,000, and includes rent for the entire remaining term of the lease, as
      well as property taxes and other costs allegedly incurred by the landlord.
      In
      August 2003, the landlord claimed a bank deposit, in the amount of $222,000,
      which was previously provided as security in connection with the lease
      agreement. We intend to vigorously defend the suit. In July 2005, Keryx (Israel)
      Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the landlord's
      complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed an answer
      to
      the landlord's complaint. Generally, each answer challenges the merits of the
      landlord's cause of action as to each defendant. All defendants, except Keryx
      (Israel) Ltd., have filed a motion to dismiss the complaint. The plaintiff
      has
      filed a response to each answer. At this time, the Circuit Court of Jerusalem
      has not issued a decision with respect to the motion to dismiss. A hearing
      on a
      motion by Keryx Biopharmaceuticals, Inc. and Michael S. Weiss to vacate service
      of process outside of Israel was held in June 2006. On October 15, 2006, the
      Court held that the service of the claim against Mr. Weiss is vacated.
      Consequently, the Circuit Court of Jerusalem dismissed the suit against Mr.
      Weiss. However, the service against us was sustained. We appealed this holding.
      The appeal was denied on June 18, 2007, and we filed a petition for certiorari
      to the Supreme Court of Israel. The motion is pending. To date, we have not
      yet
      recorded a charge to reflect any potential liability associated with this
      lawsuit, as it is too early to accurately estimate the amount of the charge,
      if
      any.




26




In
      April
      2006, we acquired the assets of the diagnostics business of AusAm
      Biotechnologies, Inc., (“AusAm”) a debtor in a pending Chapter 11 proceeding, in
      a court-approved transaction.  Subsequent to the closing, disputes arose
      between AusAm and Keryx relating to the determination of the purchase
      consideration under the acquisition agreement. On July 31, 2006, AusAm
      filed a motion purporting to seek to enforce the terms of the acquisition
      agreement and alleging damages in the amount of $818,145. (In re:  AusAm
      Biotechnologies, Inc., Chapter 11 Case No. 06-10214 (RDD) (Bankr.
      S.D.N.Y.)). The matter has been settled pursuant to a settlement agreement
      approved by the Bankruptcy Court on April 10, 2007. Under the settlement, Keryx
      paid AusAm $110,075 on April 12, 2007 in full settlement of all claims made
      by
      AusAm in the action.





**ITEM
      1A. RISK FACTORS** ****





You
      should carefully consider the following risks and uncertainties. If any of
      the
      following occurs, our business, financial condition or operating results could
      be materially harmed. These factors could cause the trading price of our common
      stock to decline, and you could lose all or part of your investment.





**Risks
      Related to Our Business**





***We
      have a limited operating history and have incurred substantial operating losses
      since our inception. We expect to continue to incur losses in the future and
      may
      never become profitable.***





We
      have a
      limited operating history. You should consider our prospects in light of the
      risks and difficulties frequently encountered by early stage companies. In
      addition, we have incurred operating losses since our inception and expect
      to
      continue to incur operating losses for the foreseeable future and may never
      become profitable. As of June 30, 2007, we had an accumulated deficit of
      approximately $229.5 million. As we expand our research and development efforts,
      we will incur increasing losses. We may continue to incur substantial operating
      losses even if we begin to generate revenues from our drug
      candidates.





We
      have
      not yet commercialized any of our drug candidates and cannot be sure we will
      ever be able to do so. Even if we commercialize one or more of our drug
      candidates, we may not become profitable. Our ability to achieve profitability
      depends on a number of factors, including our ability to complete our
      development efforts, obtain regulatory approval for our drug candidates,
      successfully complete any post-approval regulatory obligations and successfully
      commercialize our drug candidates.





**Risks
      Associated with Our Product Development Efforts**





***If
      we are unable to successfully complete our clinical trial programs, or if such
      clinical trials take longer to complete than we project, our ability to execute
      our current business strategy will be adversely
      affected.***





Whether
      or not and how quickly we complete clinical trials is dependent in part upon
      the
      rate at which we are able to engage clinical trial sites and, thereafter, the
      rate of enrollment of patients, and the rate we collect, clean, lock and analyze
      the clinical trial database. Patient enrollment is a function of many factors,
      including the size of the patient population, the proximity of patients to
      clinical sites, the eligibility criteria for the study, the existence of
      competitive clinical trials, and whether existing or new drugs are approved
      for
      the indication we are studying. We are aware that other companies are planning
      clinical trials that will seek to enroll patients with the same diseases as
      we
      are studying. In addition, one of our current trials for Sulonex is designed
      to
      continue until a pre-determined number of events have occurred to the patients
      enrolled. Trials such as this are subject to delays stemming from patient
      withdrawal and from lower than expected event rates and may also incur increased
      costs if enrollment is increased in order to achieve the desired number of
      events. If we experience delays in identifying and contracting with sites and/or
      in patient enrollment in our clinical trial programs, we may incur additional
      costs and delays in our development programs, and may not be able to complete
      our clinical trials on a cost-effective or timely basis. In addition, conducting
      multi-national studies adds another level of complexity and risk as we are
      subject to events affecting countries outside the United States.




27




Additionally,
      we have finalized an SPA agreement with the FDA for the Phase III and Phase
      IV
      clinical trials of Sulonex. The clinical plan to support a new drug application,
      or NDA, approval for Sulonex under subpart H, as agreed upon with the FDA under
      an SPA, consists of: (i) a single Phase III trial in patients with
      microalbuminuria based on the surrogate marker of regression of microalbuminuria
      as the primary endpoint; (ii) supportive data from previously conducted clinical
      studies; and (iii) substantial recruitment into our Phase IV confirmatory study
      that will measure clinical outcomes in patients with overt nephropathy, or
      macroalbuminuria. The subpart H process is complex and requires careful
      execution. No assurance can be given that we will be able to meet the
      requirements set forth in the SPA. Even if we meet those requirements, the
      FDA
      is not obligated to grant approval of our NDA for Sulonex. Many companies who
      have been granted the right to utilize an accelerated approval approach have
      failed to obtain approval. Since we are seeking accelerated approval under
      an
      SPA, we may be subject to enhanced scrutiny. Additionally, even if the primary
      endpoint is achieved, an SPA does not guarantee approval. The FDA may raise
      issues of safety, study conduct, changes in scientific or medical evidence
      or
      sentiment or internal inconsistency in the data prior to making their final
      decision. The FDA may also seek the guidance of an advisory panel prior to
      making their final decision. If the FDA approves Sulonex for marketing on the
      basis of our Phase III trial, our Phase IV clinical trial may yield insufficient
      efficacy data or give rise to safety concerns, which could result in withdrawal
      of such approval or could cause us to withdraw the product from the market.
      Moreover, negative or inconclusive results from the clinical trials we hope
      to
      conduct or adverse medical events could cause us to have to repeat or terminate
      the clinical trials. Accordingly, we may not be able to complete the clinical
      trials within an acceptable time frame, if at all.





***Pre-clinical
      testing and clinical development are long, expensive and uncertain processes.
      If
      our drug candidates do not receive the necessary regulatory approvals, we will
      be unable to commercialize our drug candidates.***





We
      have
      not received, and may never receive, regulatory approval for the commercial
      sale
      of any of our drug candidates. We will need to conduct significant additional
      research and human testing before we can apply for product approval with the
      FDA
      or with regulatory authorities of other countries. Pre-clinical
      testing and clinical development are long, expensive and uncertain processes. Satisfaction
      of regulatory requirements typically depends on the nature, complexity and
      novelty of the product and requires the expenditure of substantial resources.
      Data obtained from pre-clinical and clinical tests can be interpreted in
      different ways, which could delay, limit or prevent regulatory approval. It
      may
      take us many years to complete the testing of our drug candidates and failure
      can occur at any stage of this process. Negative or inconclusive results or
      medical events during a clinical trial could cause us to delay or terminate
      our
      development efforts.





Furthermore,
      interim results of preclinical or clinical studies do not necessarily predict
      their final results, and acceptable results in early studies might not be
      obtained in later studies. Drug candidates in the later stages of clinical
      development may fail to show the desired safety and efficacy traits despite
      positive results in initial clinical testing. There can be no assurance that
      the
      results from the Sulonex Phase III study will track the data from the pilot
      Collaborative Study Group Phase II study or the DiNAS Phase II study, or that
      the results from the Sulonex Phase IV study will yield sufficient efficacy
      data.
      Results from these earlier Sulonex studies may not be indicative of results
      from
      future clinical trials and the risk remains that the pivotal program for Sulonex
      may generate efficacy data that will be insufficient for the approval of the
      drug, or may raise safety concerns that may prevent approval of the drug.
      Interpretation of the prior safety and efficacy data of Sulonex, or our other
      drug candidates, may also be flawed and there can be no assurance that safety
      and/or efficacy concerns from the prior data were overlooked or misinterpreted,
      which in subsequent, larger studies appear and prevents approval of Sulonex
      or
      our other drugs candidates.





Clinical
      trials also have a high risk of failure. A number of companies in the
      pharmaceutical industry, including biotechnology companies, have suffered
      significant setbacks in advanced clinical trials, even after achieving promising
      results in earlier trials. If we experience delays in the testing or approval
      process or if we need to perform more or larger clinical trials than originally
      planned, our financial results and the commercial prospects for our drug
      candidates may be materially impaired. In addition, we have limited experience
      in conducting and managing the clinical trials necessary to obtain regulatory
      approval in the United States and abroad and, accordingly, may encounter
      unforeseen problems and delays in the approval process. While we have engaged
      a
      clinical research organization with experience in conducting regulatory trials,
      errors in the conduct, monitoring and/or auditing could invalidate the results
      from a regulatory perspective.




28




***Because
      all of our proprietary technologies are licensed to us by third parties,
      termination of these license agreements would prevent us from developing our
      drug candidates.***





We
      do not
      own any of our drug candidates. We have licensed the rights, patent or
      otherwise, to our drugs candidates from third parties. These license agreements
      require us to meet development or financing milestones and impose development
      and commercialization due diligence requirements on us. In addition, under
      these
      agreements, we must pay royalties on sales of products resulting from licensed
      technologies and pay the patent filing, prosecution and maintenance costs
      related to the licenses. If we do not meet our obligations in a timely manner
      or
      if we otherwise breach the terms of our license agreements, our licensors could
      terminate the agreements, and we would lose the rights to our drug candidates.
      From time to time, in the ordinary course of business, we may have disagreements
      with our licensors or collaborators regarding the terms of our agreements or
      ownership of proprietary rights, which could lead to delays in the research,
      development and commercialization of our drug candidates or could require or
      result in litigation or arbitration, which would be time-consuming and
      expensive.





***We
      rely on third parties to manufacture our products. If these third parties do
      not
      successfully manufacture our products, our business will be
      harmed.***





We
      have
      limited experience in manufacturing products for clinical or commercial
      purposes. We intend to continue, in whole or in part, to use third parties
      to
      manufacture our products for use in clinical trials and for future sales. We
      may
      not be able to enter into future third-party contract manufacturing agreements
      on acceptable terms to us, if at all.





Contract
      manufacturers often encounter difficulties in scaling up production, including
      problems involving production yields, quality control and assurance, shortage
      of
      qualified personnel, compliance with FDA and foreign regulations, production
      costs and development of advanced manufacturing techniques and process controls.
      Our third-party manufacturers may not perform as agreed or may not remain in
      the
      contract manufacturing business for the time required by us to successfully
      produce and market our drug candidates. In addition, our contract manufacturers
      will be subject to ongoing periodic, unannounced inspections by the FDA and
      corresponding foreign governmental agencies to ensure strict compliance with,
      among other things, current good manufacturing practices, in addition to other
      governmental regulations and corresponding foreign standards. We will not have
      control over, other than by contract, third-party manufacturers' compliance
      with
      these regulations and standards. Switching or engaging multiple manufacturers
      may be difficult because the number of potential manufacturers is limited and,
      particularly in the case of Sulonex, the process by which multiple manufacturers
      make the drug substance must be identical at each manufacturing facility. It
      may
      be difficult for us to find and engage replacement or multiple manufacturers
      quickly and on terms acceptable to us, if at all. Moreover, if we need to change
      manufacturers, the FDA and corresponding foreign regulatory agencies must
      approve these manufacturers in advance, which will involve testing and
      additional inspections to ensure compliance with FDA and foreign regulations
      and
      standards.





***If
      third-party manufacturers fail to deliver the required quantities of our drug
      candidates on a timely basis and at commercially reasonable prices, we will
      not
      be able to commercialize our products as planned.***





We
      have
      entered into a relationship with a U.S.-based contract manufacturer for Sulonex
      which we believe will be adequate to satisfy our current clinical supply needs.
      In addition, we have entered into an agreement with the same manufacturer to
      build a larger scale manufacturing suite within their current facility, which
      they will operate on our behalf. We believe this suite will be suitable to
      manufacture launch and initial commercialization (approximately one to three
      years from launch) quantities of Sulonex. As we move forward, we plan to build
      additional manufacturing capacity to meet the future demands for Sulonex. As
      with all heparin-like compounds, the end product is sensitive to the
      manufacturing process utilized. Accordingly, as we scale-up we will need to
      accurately reproduce the established process on the larger scale to ensure
      successful commercialization of Sulonex. There can be no assurance that we
      will
      be successful in this endeavor. Additionally, as we scale-up, we have incurred,
      and will continue to incur, capital expenditures to enable larger scale
      production. Through June 30, 2007, we have spent approximately $10.8 million
      in
      capital expenditures building the current manufacturing suite. If we fail to
      obtain regulatory approval for Sulonex, we may incur significant losses
      disposing of the assets associated with our manufacturing suite.




29




***If
      we are not able to obtain the raw materials required for the manufacture of
      our
      lead product candidate, Sulonex, our ability to develop and market this product
      candidate will be substantially harmed.***





Key
      raw
      materials for Sulonex, our lead product candidate, are derived from porcine
      mucosa. Long-term supplies for Sulonex could be affected by limitations in
      the
      supply of porcine mucosa and the demand for other heparin products, over which
      we will have no control. We estimate, in part, based on the number of pigs
      killed worldwide and estimates of projected supplies of porcine
      mucosa, that there is enough potential supply of this raw
      material to commercialize Sulonex. If our estimates of the
      potential supply of this key raw material are not accurate or we cannot secure
      adequate amounts of the potential supply of such material, then the market
      potential of Sulonex will not be realized. Additionally,
      diseases affecting the world supply of pigs could have an actual or perceived
      negative impact on our ability, or the ability of our contract manufacturers,
      to
      source, make and/or sell Sulonex. Such negative impact could materially affect
      the commercial success of Sulonex.





***If
      we do not establish or maintain manufacturing, drug development and marketing
      arrangements with third parties, we may be unable to commercialize our
      products.***





We
      are an
      emerging company and do not possess all of the capabilities to fully
      commercialize our products on our own. From time to time, we may need to
      contract with third parties to:





●
            manufacture
                our product candidates;





●
            assist
                us in developing, testing and obtaining regulatory approval for and
                commercializing some of our compounds and technologies;
                and





●
            market
                and distribute our drug products.





We
      can
      provide no assurance that we will be able to successfully enter into agreements
      with such third parties on terms that are acceptable to us, if at all. If we
      are
      unable to successfully contract with third parties for these services when
      needed, or if existing arrangements for these services are terminated, whether
      or not through our actions, or if such third parties do not fully perform under
      these arrangements, we may have to delay, scale back or end one or more of
      our
      drug development programs or seek to develop or commercialize our products
      independently, which could result in delays. Furthermore, such failure could
      result in the termination of license rights to one or more of our products.
      If
      these manufacturing, development or marketing agreements take the form of a
      partnership or strategic alliance, such arrangements may provide our
      collaborators with significant discretion in determining the efforts and
      resources that they will apply to the development and commercialization of
      our
      products. Accordingly, to the extent that we rely on third parties to research,
      develop or commercialize our products, we are unable to control whether such
      products will be scientifically or commercially successful. Additionally, if
      these third parties fail to perform their obligations under our agreements
      with
      them or fail to perform their work in a satisfactory manner, in spite of our
      efforts to monitor and ensure the quality of such work, we may face delays
      in
      achieving the regulatory milestones required for commercialization of one or
      more drug candidates.





***Our
      reliance on third parties, such as clinical research organizations, or CROs,
      may
      result in delays in completing, or a failure to complete, clinical trials if
      they fail to perform under our agreements with them.***





In
      the
      course of product development, we engage CROs to conduct and manage clinical
      studies and to assist us in guiding our products through the FDA review and
      approval process. If the CROs fail to perform their obligations under our
      agreements with them or fail to perform clinical trials in a satisfactory
      manner, we may face delays in completing our clinical trials, as well as
      commercialization of one or more drug candidates. Furthermore, any loss or
      delay
      in obtaining contracts with such entities may also delay the completion of
      our
      clinical trials and the market approval of drug candidates.




30




**Other
      Risks Related to Our Business**





***If
      we are unable to develop adequate sales, marketing or distribution capabilities
      or enter into agreements with third parties to perform some of these functions,
      we will not be able to commercialize our products
      effectively.***





In
      the
      event Sulonex is approved by the FDA, we currently plan to conduct our own
      sales
      and marketing effort to support the drug, and we may adopt this strategy with
      respect to future drug products. We currently have no experience in sales,
      marketing or distribution. To directly market and distribute any products,
      we
      must build a sales and marketing organization with appropriate technical
      expertise and distribution capabilities. We may attempt to build such a sales
      and marketing organization on our own or with the assistance of a contract
      sales
      organization. For some market opportunities, we may need to enter into
      co-promotion or other licensing arrangements with larger pharmaceutical or
      biotechnology firms in order to increase the commercial success of our products.
      We may not be able to establish sales, marketing and distribution capabilities
      of our own or enter into such arrangements with third parties in a timely manner
      or on acceptable terms. To the extent that we enter into co-promotion or other
      licensing arrangements, our product revenues are likely to be lower than if
      we
      directly marketed and sold our products, and some or all of the revenues we
      receive will depend upon the efforts of third parties, and these efforts may
      not
      be successful. Additionally, building marketing and distribution capabilities
      may be more expensive than we anticipate, requiring us to divert capital from
      other intended purposes or preventing us from building our marketing and
      distribution capabilities to the desired levels.





Notwithstanding
      our current plans to commercialize Sulonex and our other drug candidates, from
      time to time we may consider offers or hold discussions with companies for
      partnerships or the acquisition of our company or any of our products. Any
      accepted offer may preclude us from the execution of our current business
      plan.





***Even
      if we obtain FDA approval to market our drug products, if they fail to achieve
      market acceptance, we will never record meaningful
      revenues.***





Even
      if
      our products are approved for sale, they may not be commercially successful
      in
      the marketplace. Market acceptance of our drug products will depend on a number
      of factors, including:





●  perceptions
      by members of the health care community, including physicians, of the safety
      and
      efficacy of our product candidates;





●  the
      rates
      of adoption of our products by medical practitioners and the target populations
      for our products;





●  the
      potential advantages that our products offer over existing treatment
      methods;





●  the
      cost-effectiveness of our products relative to competing products;





●  the
      availability of government or third-party payor reimbursement for our
      products;





●  the
      side
      effects or unfavorable publicity concerning our products or similar products;
      and





●  the
      effectiveness of our sales, marketing and distribution efforts.





Because
      we expect sales of our products, if approved, to generate substantially all
      of
      our revenues in the long-term, the failure of our drugs to find market
      acceptance would harm our business and could require us to seek additional
      financing or other sources of revenue.





***If
      our competitors develop and market products that are less expensive, more
      effective or safer than our drug products, our commercial opportunities may
      be
      reduced or eliminated.***





The
      pharmaceutical industry is highly competitive. Our competitors include
      pharmaceutical companies and biotechnology companies, as well as universities
      and public and private research institutions. In addition, companies that are
      active in different but related fields represent substantial competition for
      us.
      Many of our competitors have significantly greater capital resources, larger
      research and development staffs and facilities and greater experience in drug
      development, regulation, manufacturing and marketing than we do. These
      organizations also compete with us to recruit qualified personnel, attract
      partners for joint ventures or other collaborations, and license technologies
      that are competitive with ours. As a result, our competitors may be able to
      more
      easily develop technologies and products that could render our drug products
      obsolete or noncompetitive. To compete successfully in this industry we must
      identify novel and unique drugs or methods of treatment and then complete the
      development of those drugs as treatments in advance of our
      competitors.




31




The
      drugs
      that we are attempting to develop will have to compete with existing therapies.
      In addition, our commercial opportunities may be reduced or eliminated if our
      competitors develop and market products that are less expensive, more effective
      or safer than our drug products. Other companies have drug candidates in various
      stages of pre-clinical or clinical development to treat diseases for which
      we
      are also seeking to discover and develop drug products. Some of these potential
      competing drugs are further advanced in development than our drug candidates
      and
      may be commercialized earlier. Even if we are successful in developing effective
      drugs, our products may not compete successfully with products produced by
      our
      competitors.





***If
      we lose our key personnel or are unable to attract and retain additional
      personnel, our operations could be disrupted and our business could be
      harmed.***





As
      of
      August 7, 2007, we had 43 full and part-time employees. To successfully develop
      our drug candidates, we must be able to attract and retain highly skilled
      personnel. In addition, if we lose the services of our current personnel, in
      particular, Michael S. Weiss, our Chairman and Chief Executive Officer, our
      ability to continue to execute on our business plan could be materially
      impaired. Although we have an employment agreement with Mr. Weiss, this
      agreement does not prevent him from terminating his employment with
      us.





***Any
      acquisitions we make may require a significant amount of our available cash
      and
      may not be scientifically or commercially successful.***





As
      part
      of our business strategy, we may effect acquisitions to obtain additional
      businesses, products, technologies, capabilities and personnel. If we make
      one
      or more significant acquisitions in which the consideration includes cash,
      we
      may be required to use a substantial portion of our available cash.





Acquisitions
      involve a number of operational risks, including:





●
            difficulty
                and expense of assimilating the operations, technology and personnel
                of
                the acquired business;





●
            our
                inability to retain the management, key personnel and other employees
                of
                the acquired business;





●
            our
                inability to maintain the acquired company's relationship with key
                third
                parties, such as alliance partners;





●
            exposure
                to legal claims for activities of the acquired business prior to
                the
                acquisition;





●
            the
                diversion of our management's attention from our core business;
                and





●
            the
                potential impairment of goodwill and write-off of in-process research
                and
                development costs, adversely affecting our reported results of
                operations.





***The
      status of reimbursement from third-party payors for newly approved health care
      drugs is uncertain and failure to obtain adequate reimbursement could limit
      our
      ability to generate revenue.***





Our
      ability to commercialize pharmaceutical products may depend, in part, on the
      extent to which reimbursement for the products will be available
      from:





●
            government
                and health administration authorities;





●
            private
                health insurers;





●
            managed
                care programs; and


●
              other
                  third-party payors.


32




Significant
      uncertainty exists as to the reimbursement status of newly approved health
      care
      products. Third-party payors, including Medicare, are challenging the prices
      charged for medical products and services. Government and other third-party
      payors increasingly are attempting to contain health care costs by limiting
      both
      coverage and the level of reimbursement for new drugs and by refusing, in some
      cases, to provide coverage for uses of approved products for disease indications
      for which the FDA has not granted labeling approval. Third-party insurance
      coverage may not be available to patients for our products. If government and
      other third-party payors do not provide adequate coverage and reimbursement
      levels for our products, their market acceptance may be reduced. In
      particular, we are currently projecting that the price of Sulonex will be at
      a
      significant premium to the currently marketed products that are approved for
      the
      treatment of diabetic nephropathy. The inability to obtain adequate
      reimbursement for Sulonex would limit our ability to generate revenue and
      prevent us from realizing the market potential of Sulonex.





***Health
      care reform measures could adversely affect our
      business.***





The
      business and financial condition of pharmaceutical and biotechnology companies
      are affected by the efforts of governmental and third-party payors to contain
      or
      reduce the costs of health care. In the United States and in foreign
      jurisdictions there have been, and we expect that there will continue to be,
      a
      number of legislative and regulatory proposals aimed at changing the health
      care
      system, such as proposals relating to the reimportation of drugs into the U.S.
      from other countries (where they are then sold at a lower price) and government
      control of prescription drug pricing. The pendency or approval of such proposals
      could result in a decrease in our stock price or limit our ability to raise
      capital or to obtain strategic partnerships or licenses.





***We
      face product liability risks and may not be able to obtain adequate
      insurance.***





The
      use
      of our drug candidates in clinical trials, the future sale of any approved
      drug
      candidates and new technologies, and the sale of Accumin, exposes us to
      liability claims. Although we are not aware of any historical or anticipated
      product liability claims against us, if we cannot successfully defend ourselves
      against product liability claims, we may incur substantial liabilities or be
      required to cease clinical trials of our drug candidates or limit
      commercialization of any approved products.





We
      believe that we have obtained sufficient product liability insurance coverage
      for our clinical trials and the sale of Accumin. We intend to expand our
      insurance coverage to include the commercial sale of any approved products
      if
      marketing approval is obtained; however, insurance coverage is becoming
      increasingly expensive. We may not be able to maintain insurance coverage at
      a
      reasonable cost. We also may not be able to obtain additional insurance coverage
      that will be adequate to cover product liability risks that may arise.
      Regardless of merit or eventual outcome, product liability claims may result
      in:





●  decreased
      demand for a product;





●  injury
      to
      our reputation;





●  our
      inability to continue to develop a drug candidate;





●  withdrawal
      of clinical trial volunteers; and





●  loss
      of
      revenues.





Consequently,
      a product liability claim or product recall may result in losses that could
      be
      material.





***In
      connection with providing our clinical trial management and site recruitment
      services, we may be exposed to liability that could have a material adverse
      effect on our financial condition and results of
      operations.***





The
      Online Collaborative Oncology Group, Inc., or OCOG, a subsidiary we acquired
      through our acquisition of ACCESS Oncology, provides clinical trial management
      and site recruitment services to us as well as other biotechnology and
      pharmaceutical companies. In conducting the activities of OCOG, any failure
      on
      our part to comply with applicable governmental regulations or contractual
      obligations could expose us to liability to our clients and could have a
      material adverse effect on us. We also could be held liable for errors or
      omissions in connection with the services we perform. In addition, the wrongful
      or erroneous delivery of health care information or services may expose us
      to
      liability. If we were required to pay damages or bear the costs of defending
      any
      such claims, the losses could be material.




33




***Our
      corporate compliance efforts cannot guarantee that we are in compliance with
      all
      potentially applicable regulations.***





The
      development, manufacturing, pricing, sales, and reimbursement of our products,
      together with our general operations, are subject to extensive regulation by
      federal, state and other authorities within the United States and numerous
      entities outside of the United States. We are a relatively small company with
      43
      full and part-time employees. We also have significantly fewer employees than
      many other companies that have a product candidate in late-stage clinical
      development, and we rely heavily on third parties to conduct many important
      functions. While we believe that our corporate compliance program is sufficient
      to ensure compliance with applicable regulations, we cannot assure you that
      we
      are or will be in compliance with all potentially applicable regulations. If
      we
      fail to comply with any of these regulations we could be subject to a range
      of
      regulatory actions, including suspension or termination of clinical trials,
      the
      failure to approve a product candidate, restrictions on our products or
      manufacturing processes, withdrawal of products from the market, significant
      fines, or other sanctions or litigation.





**Risks
      Related to Our Financial Condition**





***Our
      current cash, cash equivalents and investment securities may not be adequate
      to
      support our operations for the length of time that we have
      estimated.***





We
      believe that our $88.3 million in cash, cash equivalents, interest receivable
      and investment securities as of June 30, 2007 will be sufficient to enable
      us to
      meet our planned operating needs and capital expenditures through the date
      of
      the release of our Phase III Sulonex data, expected in the first half of 2008.
      Depending on the outcome of our Phase III study, our cash requirements will
      vary
      dramatically. In the event of a negative outcome, we believe our current capital
      resources will enable us to meet our revised operating needs and capital
      expenditures for at least 12 to 24 months from January 2008. Our forecast of
      the
      period of time through which our cash, cash equivalents, interest receivable
      and
      investment securities will be adequate to support our operations is a
      forward-looking statement that involves risks and uncertainties. The actual
      amount of funds we will need to operate is subject to many factors, some of
      which are beyond our control. These factors include the following:





●
            the
                timing of completion and results from clinical trials for our drug
                candidates, especially Sulonex;





●
            the
                timing of expenses associated with manufacturing and product development
                of the proprietary drug candidates within our portfolio and those
                that may
                be in-licensed, partnered or
                acquired;





●
            the
                timing of the in-licensing, partnering and acquisition of new product
                opportunities;





●
            the
                progress of the development efforts of parties with whom we have
                entered,
                or may enter, into research and development
                agreements;





●
            our
                ability to achieve our milestones under our licensing arrangements;
                and





●
            the
                costs involved in prosecuting and enforcing patent claims and other
                intellectual property rights.





***If
      we are unable to obtain additional funds on terms favorable to us, or at all,
      our business would be harmed.***





We
      expect
      to use, rather than generate, funds from operations for the foreseeable future.
      Based on our current plans, we believe our existing cash, cash equivalents,
      interest receivable and investment securities will be sufficient to fund our
      operating expenses and capital requirements through the date of the release
      of
      our Phase III Sulonex data, expected in the first half of 2008. Depending on
      the
      outcome of our Phase III study, our cash requirements will vary dramatically.
      In
      the event of a negative outcome, we believe our current capital resources will
      enable us to meet our revised operating needs and capital expenditures for
      at
      least 12 to 24 months from January 2008. However, the actual amount of funds
      that we will need prior to or after that date will be determined by many
      factors, some of which are beyond our control. As a result, we may need funds
      sooner or in different amounts than we currently anticipate, depending
      upon:




34




●  the
      timing of completion and results from clinical trials for our drug candidates,
      especially Sulonex;





●  the
      progress of our development activities;





●  the
      progress of our research activities;





●  the
      number and scope of our development programs;





●  the
      costs
      associated with commercialization activities, including manufacturing, marketing
      and sales;





●  our
      ability to establish and maintain current and new licensing or acquisition
      arrangements;





●  our
      ability to achieve our milestones under our licensing arrangements;





●  the
      costs
      involved in enforcing patent claims and other intellectual property rights;
      and





●  the
      costs
      and timing of regulatory approvals.





If
      our
      capital resources are insufficient to meet future capital requirements, we
      will
      have to raise additional funds. If we are unable to obtain additional funds
      on
      terms favorable to us or at all, we may be required to cease or reduce our
      operating activities or sell or license to third parties some or all of our
      intellectual property. If we raise additional funds by selling additional shares
      of our capital stock, the ownership interests of our stockholders will be
      diluted. If we need to raise additional funds through the sale or license of
      our
      intellectual property, we may be unable to do so on terms favorable to
      us.





***Our
      prior restructurings may result in additional Israeli-related
      liabilities.***





In
      July
      2003, Keryx (Israel) Ltd., one of our Israeli subsidiaries, vacated its
      Jerusalem facility, after giving advance notice to RMPA Properties Ltd., the
      landlord. On May 1, 2005, the landlord filed suit in the Circuit Court of
      Jerusalem in Jerusalem, Israel, claiming that Keryx (Israel) Ltd., among other
      parties, was liable as a result of the alleged breach of the lease agreement.
      In
      addition to Keryx (Israel) Ltd., the landlord brought suit against Keryx
      Biomedical Technologies Ltd., another of our Israeli subsidiaries, Keryx
      Biopharmaceuticals, Inc., Michael S. Weiss, our Chairman and Chief Executive
      Officer, and Robert Trachtenberg, a former employee of Keryx. The amount
      demanded by the landlord totals 4,345,313 New Israeli Shekels, or approximately
      $1,023,000, and includes rent for the entire remaining term of the lease, as
      well as property taxes and other costs allegedly incurred by the landlord.
      In
      August 2003, the landlord claimed a bank deposit, in the amount of $222,000,
      which was previously provided as security in connection with the lease
      agreement. We intend to vigorously defend the suit. In July 2005, Keryx (Israel)
      Ltd. and Keryx Biomedical Technologies Ltd. filed an answer to the landlord's
      complaint. In October 2005, Keryx Biopharmaceuticals, Inc. filed an answer
      to
      the landlord's complaint. Generally, each answer challenges the merits of the
      landlord's cause of action as to each defendant. All defendants, except Keryx
      (Israel) Ltd., have filed a motion to dismiss the complaint. The plaintiff
      has
      filed a response to each answer. At this time, the Circuit Court of Jerusalem
      has not issued a decision with respect to the motion to dismiss. A hearing
      on a
      motion by Keryx Biopharmaceuticals, Inc. to vacate service of process outside
      of
      Israel was held in June 2006. On October 15, 2006, the Circuit Court of
      Jerusalem held that the service of process on Keryx was sustained. We appealed
      this holding. The appeal was denied on June 18, 2007, and we filed a petition
      for certiorari to the Supreme Court of Israel. The motion is pending. To date,
      we have not yet recorded a charge to reflect any potential liability associated
      with this lawsuit, as it is too early to accurately estimate the amount of
      the
      charge, if any.





In
      September 2001, one of our Israeli subsidiaries received the status of an
      "Approved Enterprise," a status which grants certain tax benefits in Israel
      in
      accordance with the "Law for the Encouragement of Capital Investments, 1959."
      Through December 31, 2003, our Israeli subsidiary, which ceased operations
      in
      2003, has received tax benefits in the form of exemptions of approximately
      $744,000 as a result of our subsidiary's status as an "Approved Enterprise."
      As
      part of the restructuring implemented during 2003, we closed down our Jerusalem
      laboratory facility. In October 2003, the subsidiary received a letter from
      the
      Israeli Ministry of Industry and Trade that its Approved Enterprise status
      was
      cancelled as of July 2003 and that past benefits would not need to be repaid.
      The Israeli tax authorities have yet to confirm this position; however, we
      believe that, based on the letter received from the Ministry of Industry and
      Trade, it is unlikely that past benefits will need to be repaid, and therefore,
      we have not recorded any charge with respect to this potential liability. There
      can be no assurances that the Israeli tax authorities will confirm this
      position. In 2007, the Israeli tax authorities commenced an examination of
      the
      Israeli tax returns of one of the Company’s subsidiaries in Israel for the tax
      years 2003 through 2006. As a result, we may be liable to repay some or all
      of
      the tax benefits received to date, which could adversely affect our cash flow
      and results of operations.




35




**Risks
      Related to Our Intellectual Property**





***If
      we are unable to adequately protect our intellectual property, third parties
      may
      be able to use our intellectual property, which could adversely affect our
      ability to compete in the market.***





Our
      commercial success will depend in part on our ability and the ability of our
      licensors to obtain and maintain patent protection on our drug products and
      technologies and successfully defend these patents against third-party
      challenges. The patent positions of pharmaceutical and biotechnology companies
      can be highly uncertain and involve complex legal and factual questions. No
      consistent policy regarding the breadth of claims allowed in biotechnology
      patents has emerged to date. Accordingly, the patents we use may not be
      sufficiently broad to prevent others from practicing our technologies or from
      developing competing products. Furthermore, others may independently develop
      similar or alternative drug products or technologies or design around our
      patented drug products and technologies. The patents we use may be challenged
      or
      invalidated or may fail to provide us with any competitive
      advantage.





We
      rely
      on trade secrets to protect our intellectual property where we believe patent
      protection is not appropriate or obtainable. Trade secrets are difficult to
      protect. While we require our employees, collaborators and consultants to enter
      into confidentiality agreements, this may not be sufficient to adequately
      protect our trade secrets or other proprietary information. In addition, we
      share ownership and publication rights to data relating to some of our drug
      products and technologies with our research collaborators and scientific
      advisors. If we cannot maintain the confidentiality of this information, our
      ability to receive patent protection or protect our trade secrets or other
      proprietary information will be at risk.





***Litigation
      or third-party claims of intellectual property infringement could require us
      to
      spend substantial time and money defending such claims and adversely affect
      our
      ability to develop and commercialize our products.***





Third
      parties may assert that we are using their proprietary intellectual property
      without authorization. In addition, third parties may have or obtain patents
      in
      the future and claim that our drug products or technologies infringe their
      patents. If we are required to defend against patent suits brought by third
      parties, or if we sue third parties to protect our patent rights, we may be
      required to pay substantial litigation costs, and our management's attention
      may
      be diverted from operating our business. In addition, any legal action against
      our licensors or us that seeks damages or an injunction of our commercial
      activities relating to our drug products or technologies could subject us to
      monetary liability and require our licensors or us to obtain a license to
      continue to use our drug products or technologies. We cannot predict whether
      our
      licensors or we would prevail in any of these types of actions or that any
      required license would be made available on commercially acceptable terms,
      if at
      all.





**Risks
      Related to Our Common Stock**





***Future
      sales or other issuances of our common stock could depress the market for our
      common stock.***





Sales
      of
      a substantial number of shares of our common stock, or the perception by the
      market that those sales could occur, could cause the market price of our common
      stock to decline or could make it more difficult for us to raise funds through
      the sale of equity in the future. On December 30, 2005, we filed with the SEC
      a
      shelf registration statement on Form S-3, that was declared effective by the
      SEC
      on January 13, 2006, providing for the offering of up to $150 million of our
      common stock. Following our registered direct offering of common stock to two
      institutional investors that was completed in March 2006, there remains
      approximately $67 million available for sale on this shelf registration
      statement. Future sales pursuant to this registration statement could depress
      the market for our common stock.




36




If
      we
      make one or more significant acquisitions in which the consideration includes
      stock or other securities, our stockholders may be significantly diluted. We
      may
      be required to issue up
      to
      3,372,422 shares of our common stock to
      former stockholders of ACCESS Oncology upon the achievement of certain
      milestones. In addition, we may enter into arrangements with third parties
      permitting us to issue shares of common stock in lieu of certain cash payments
      upon the achievement of milestones.





***Our
      stock price can be volatile, which increases the risk of litigation, and may
      result in a significant decline in the value of your
      investment.***





The
      trading price of our common stock is likely to be highly volatile and subject
      to
      wide fluctuations in price in response to various factors, many of which are
      beyond our control. These factors include:





●  developments
      concerning our drug candidates;





●  announcements
      of technological innovations by us or our competitors;





●  introductions
      or announcements of new products by us or our competitors;





●  announcements
      by us of significant acquisitions, strategic partnerships, joint ventures or
      capital commitments;





●  changes
      in financial estimates by securities analysts;





●  actual
      or
      anticipated variations in quarterly operating results;





●  expiration
      or termination of licenses, research contracts or other collaboration
      agreements;





●  conditions
      or trends in the regulatory climate and the biotechnology and pharmaceutical
      industries;





●  changes
      in the market valuations of similar companies; and





●  additions
      or departures of key personnel.





In
      addition, equity markets in general, and the market for biotechnology and life
      sciences companies in particular, have experienced extreme price and volume
      fluctuations that have often been unrelated or disproportionate to the operating
      performance of companies traded in those markets. These broad market and
      industry factors may materially affect the market price of our common stock,
      regardless of our development and operating performance. In the past, following
      periods of volatility in the market price of a company's securities, securities
      class-action litigation has often been instituted against that company. Such
      litigation, if instituted against us, could cause us to incur substantial costs
      to defend such claims and divert management's attention and resources, which
      could seriously harm our business.





***Certain
      anti-takeover provisions in our charter documents and Delaware law could make
      a
      third-party acquisition of us difficult. This could limit the price investors
      might be willing to pay in the future for our common
      stock.***





Provisions
      in our amended and restated certificate of incorporation and bylaws could have
      the effect of making it more difficult for a third party to acquire, or of
      discouraging a third party from attempting to acquire, or control us. These
      factors could limit the price that certain investors might be willing to pay
      in
      the future for shares of our common stock. Our amended and restated certificate
      of incorporation allows us to issue preferred stock with rights senior to those
      of the common stock. The issuance of preferred stock could decrease the amount
      of earnings and assets available for distribution to the holders of our common
      stock or could adversely affect the rights and powers, including voting rights,
      of such holders. In certain circumstances, such issuance could have the effect
      of decreasing the market price of our common stock. Our amended and restated
      bylaws eliminate the right of stockholders to call a special meeting of
      stockholders, which could make it more difficult for stockholders to effect
      certain corporate actions. Any of these provisions could also have the effect
      of
      delaying or preventing a change in control.




37




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





On
      June
      20, 2007, we held our annual meeting of stockholders. The following matters
      were
      voted on by the stockholders: the election of directors, the ratification of
      our
      independent registered public accounting firm, the approval of an amendment
      to
      our certificate of incorporation to increase the number of authorized shares
      of
      our common stock, and the approval of our 2007 Long-Term Incentive Plan. At
      the
      meeting, Kevin J. Cameron, Wyche Fowler, Jr., I. Craig Henderson, Malcolm
      Hoenlein, Jack Kaye, Eric Rose, and Michael S. Weiss were re-elected to our
      board of directors.





The
      vote
      with respect to each nominee is set forth below:





Nominee
            
            Total
                Votes For
            
            Total
                Votes WithheldKevin
                J. Cameron
            
            
            35,006,731
            
            
            1,698,997Wyche
                Fowler, Jr.
            
            
            32,015,455
            
            
            4,750,273I.
                Craig Henderson, M.D.
            
            
            26,178,380
            
            
            10,587,348Malcolm
                Hoenlein
            
            
            31,861,536
            
            
            4,904,192Jack
                Kaye, CPA
            
            
            35,006,831
            
            
            1,698,897Eric
                Rose, M.D.
            
            
            35,068,956
            
            
            1,696,772Michael
                S. Weiss
            
            
            26,310,648
            
            
            10,455,080





The
      vote
      with respect to the ratification of the appointment of KPMG LLP as our
      independent registered public accounting firm set forth below:





Total
                Votes For
            
            Total
                Votes Against
            
            Abstention
                and Broker Non-Votes36,494,013
            
            
            266,175
            
            
            5,540





The
      vote
      with respect to the approval of an amendment to our certificate of incorporation
      to increase the number of authorized shares of our common stock to 95 million
      shares is set forth below.





Total
                Votes For
            
            Total
                Votes Against
            
            Abstention
                and Broker Non-Votes33,832,449
            
            
            2,925,829
            
            
            7,447





The
      vote
      with respect to the approval of our 2007 Long-Term Incentive Plan is set forth
      below:





Total
                Votes For
            
            Total
                Votes Against
            
            Abstention
                and Broker Non-Votes15,509,140
            
            
            12,730,425
            
            
            8,526,163








38


**ITEM
      6. EXHIBITS** ****





The
                exhibits listed on the Exhibit Index are included with this report.3.1
            Amended
                and Restated Certificate of Incorporation of Keryx Biopharmaceuticals,
                Inc., filed as Exhibit 3.1 to the Registrant's Annual Report on Form
                10-Q
                for the quarter ended September 30, 2004, filed on August 12, 2004,
                and
                incorporated herein by reference.3.2
            Amended
                and Restated Bylaws of Keryx Biopharmaceuticals, Inc., filed as Exhibit
                3.2 to the Registrant’s Annual Report on Form 10-K for the year ended
                December 31, 2001, filed on March 26, 2002 (File No. 000-30929),
                and
                incorporated herein by reference.3.3
            Amendment
                to Amended and Restated Certificate of Incorporation of Keryx
                Biopharmaceuticals, Inc., dated July 24, 2007.31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                August 9, 2007.31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                dated
                August 9, 2007.32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
                August9,
                2007.32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
                August9,
                2007.




39


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.


KERYX
                BIOPHARMACEUTICALS, INC.Date:
                August9,
                2007
            By:
            /s/
                Mark StierChief
                Accounting OfficerPrincipal
                Financial Officer




40





**EXHIBIT
      INDEX**





The
      following exhibits are included as part of this Quarterly Report on Form
      10-Q:




3.3
            Amendment
                to Amended and Restated Certificate of Incorporation of Keryx
                Biopharmaceuticals, Inc., dated July 24, 2007.31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                datedAugust9,
                2007.31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
                datedAugust9,
                2007.32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
                August9,
                2007.32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
                August9,
                2007.





41